The Kavanaugh Hearings Were a Missed Opportunity—For Both Sides

The Kavanaugh Hearings Were a Missed Opportunity—For Both Sides

By now you’ve heard about the combative spectacle that was last week’s Senate Judiciary Committee hearing for President Trump’s nominee to the U.S. Supreme Court, Judge Brett Kavanaugh. This momentous event was characterized not by political acumen, wit, cunning, or prudence, but by partisan obstruction, lawlessness, tantrums, hysteria, ignorance, frenzy, and anger.

Protestors screamed vulgarities and trite slogans, proving they were not interested in Kavanaugh’s responses or in substantive intellectual debate. Seventy of them were arrested on Tuesday alone. If anything, their recurring interruptions and crude histrionics gave Kavanaugh time to pause and think about his responses rather than tire out and let down his guard.

Online left-wing rabble-rousers peddled an absurd conspiracy theory about Zina Bash, a former clerk for Kavanaugh—only shortly before right-wing conspiracy theorist Alex Jones was banned from Twitter. Senator Cory Booker, a Democrat from New Jersey, publicly released documents that were allegedly confidential, claiming full knowledge of the possible repercussions of his act—namely, expulsion from the Senate. “Bring it,” Booker taunted Senator John Cornyn, who warned about the consequences of the supposed confidentiality breach. With unintended levity, Booker announced his “I am Spartacus” moment. Only the documents weren’t confidential after all; they’d already been approved for public release. Thus, Booker’s Spartacus Moment was merely a political stunt of faux bravery.

Why this hostility? Why these shenanigans?

Read the full article at ISI.org.
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As Fed Founders, Get Ready for More Radical Monetary Policy

05/09/2019Ryan McMaken

Last week, the the Federal Reserve left unchanged its benchmark federal funds rate, with Fed Chairman Jerome Powell declaring the US economy to be "on a good path."

In a unanimous vote, the Fed kept the rate in a range of 2.25% to 2.5%.

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The Fed's reluctance to allow interest rates to return to what would be considered a more normal rate historically continues to spur speculation about what the Fed should do in case of a recession.

The media narratives from "experts" and policymakers we're now hearing suggests three takeaways from last weeks' developments from both the Fed board and at the Stanford monetary policy conference last Friday.

1. The Fed Fears the Economy Remains Fragile

For eight years, the federal funds rate remained near zero, and all the while, we were told the Fed was "cautiously optimistic" about the economy, and that economy growth was "solid" and moderately strong. Yet, the Fed could not bring itself to allow the target rate to rise above QE-level near-zero rates. Then, It wasn't until 2017 that the rate was allowed to rise about one percent. By then, we were told that the Fed was just about to get aggressive with rates, taking the supposed strength of the economy as an opportunity to allow rates to rise to something resembling the four or five percent rate that might at least be in the same ballpark with what we saw during the past two expansions. That, however, now appears unlikely, even in the medium term. Fed policy has never approached anything we might call hawkish, and now Chairman Powell has already signaled 2.5 percent is quite high enough.

In spite of all the talk about "solid" growth, the Fed still sees the current economy as too fragile to deal with interest rates that would have been quite ordinary during the past 30 years.

The Trump administration, of course, points to the jobs data as "proof" of a strong economy, but outside that one group of data points, we find quite lackluster data otherwise, and the Fed knows it. Hence, it remains unenthusiastic about doing anything that would take it beyond its decade-long stance of embracing stimulus through low rates and a huge balance sheet.

2. Just Stay the Course

The Trump administration, of course, points to the jobs data as "proof" of a strong economy, but outside that one group of data points, we find quite lackluster data otherwise, and the Fed knows it. Hence, it remains unenthusiastic about doing anything that would take it beyond its decade-long stance of embracing stimulus through low rates and a huge balance sheet.

And this is why the Fed appears content to just stand as still as possible in hopes it won't break any of the fragile and easily-broken stuff around it.

This is especially important when we consider the political importance of keeping interest rates low for the sake of keeping government debt payments low. If rates go up, Congress will face ever-harder choices about what spending to cut back in order to keep up with a growing debt-service load. No one in Congress wants to even think about that, and they want the Fed to keep it that way.

By adopting a policy of standing still, though, the Fed is pretty much guaranteeing that it will begin the next recession from a position in which it has already used up many of it's stimulus tools. If interest rates are already low, and the Fed's balance sheet is already nearly at $4 trillion. What tools are left?

3. Get Ready for Radical New Monetary Policy

Since the fed knows it will likely start from a very fragile position in the next recession, it is now "reviewing" its policy options. New York Fed President John Williams says now is the time to "rethink" how it has been doing things. But not in a good way. As Yahoo! Finance reports :

For its part, the Fed has acknowledged the concern and has launched a review of its monetary policy framework and communication practices. In focus: how it publicly explains and achieves its dual mandate of maximum employment and stable prices (through its 2% inflation target).

As part of this revising of policy, many proponents of dovish monetary policy are suggesting that much higher inflation targets should be in order, and that everyone should stop worrying about pushing prices well above the old targets.

This leads to the idea that what the fed needs is a "bazooka," as noted by

Brian Cheung at AOL News:

“The central bank needs a ‘bazooka’ at the zero bound that makes credible its commitment to achieving its policy rule, and raising inflation if required,” Harvard economics professor Kenneth Rogoff said.

Rogoff’s recommendation : negative interest rate policy. The thesis: allowing interest rates to go negative, in which customers would be charged to keep money parked at their bank, would be a quicker way of spurring consumption and recovering jobs in a downturn.

Negative interest rates, of course, are an inflationist's dream. Banks would penalize people for saving money (which is really just the same as investing money) so as to incentivize them to spend their money on consumer goods instead.

The idea, then, is that it would easier to hit high new inflation targets because negative-rate policy would impel people to spend as much money as possible as quickly as possible. Prices would then increase, further encouraging spending.

It's basically just an old-fashioned inflationary spiral, but it's all necessary, we're told, to keep the economy going — at least until individuals want to retire or get into financial trouble. And then, suddenly, having no savings might be a problem.

But the experts at Harvard and the fed never let that sort of street-level household economics both them. What matters is macro policy, and the dream of a perfectly malleable economy that does what we tell it to do. And of course the economy will comply. We'll have a bazooka!

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Hayekian Insights from The Road to Serfdom

05/08/2019Gary Galles

Friedrich Hayek’s The Road to Serfdom reached its 75th anniversary this year. This classic, published near the end of the World War II, was incredibly influential. In fact, Milton Friedman wrote that he had made it a practice to ask believers in individualism how they got there in the face of the “collectivist orthodoxy,” and reported that the most frequent answer involved The Road.

As it is one of my favorite books and I have long been an avid collector of some of the finest words in defense of liberty (See my Lines of Liberty), I thought I would use the occasion to collect some of The Road ’s most insightful passages, hoping to stimulate reflection. However, I quickly discovered that despite being a short book, The Road had too much material for one short article. As a consequence, I decided to organize the material by breaking it into three parts. Below is Part 1—Freedom or Coercion.

  • We are fighting for freedom to shape our life according to our own ideas.
  • We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past.
  • Wherever the barriers to the free exercise of human ingenuity were removed, man became rapidly able to satisfy ever widening ranges of desire.
  • The fundamental principle is that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion.
  • To the great apostles of political freedom the word had meant freedom from coercion, freedom from the arbitrary power of other men.
  • People still believe that socialism and freedom can be combined…the realization of their program would mean the destruction of freedom.
  • The argument for freedom is precisely that we ought to leave room for the unforeseeable free growth.
  • While there is nothing in modern technological developments which forces us toward comprehensive economic planning, there is a great deal in them which makes infinitely more dangerous the power a planning authority would possess.
  • The very men who are most anxious to plan society [are] the most intolerant of the planning of others.
  • Under the Rule of Law, the government is prevented from stultifying individual efforts by ad hoc action. Within the known rules of the game the individual is free to pursue his personal ends and desires, certain that the powers of government will not be used deliberately to frustrate his efforts.
  • That people should wish to be relieved of the bitter choice which hard facts often impose upon them is not surprising. But few want to be relieved through having the choice made for them by others.
  • The economic freedom which is the prerequisite of any other freedom…must be the freedom of our economic activity which, with the right of choice, inevitably also carries the risk and responsibility of that right.
  • The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not. It is only because the control of the means of production is divided…that nobody has complete power over us…If all the means of production were vested in a single hand…whoever exercises this control has complete power over us.
  • Those who are willing to surrender their freedom for security have always demanded that if they give up their full freedom it should also be taken from those not prepared to do so.
  • The more we try to provide full security by interfering with the market system, the greater the insecurity becomes; and …the greater becomes the contrast between the security of those to whom it is granted as a privilege and the ever increasing insecurity of the under-privileged.
  • In order to achieve their end, collectivists must create…power over men wielded by other men—of a magnitude never before known…There is, in a competitive society, nobody who can exercise even a fraction of the power which a socialist planning board would possess.
  • The competitive system is the only system designed to minimize by decentralization the power exercised by man over man…an essential guaranty of individual freedom.
  • The “substitution of political for economic power” now so often demanded means necessarily a substitution of power from which there is no escape for a power which is always limited…centralized as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery.
  • It could almost be said…that wherever liberty as we understand it has been destroyed, this has almost always been done in the name of some new freedom promised to the people.
  • Collective freedom…is not the freedom of the members of society but the unlimited freedom of the planner to do with society what he pleases.
  • Contempt for intellectual liberty…can be found everywhere among intellectuals who have embraced a collectivist faith.
  • There is no other possibility than either the order governed by the impersonal discipline of the market or that directed by the will of a few individuals.
  • Individual freedom cannot be reconciled with the supremacy of one single purpose to which he whole society must be entirely and permanently subordinated.
  • The conflict between planning and freedom cannot but become more serious…as the scale increases.
  • A community of free men must be our goal.
  • The guiding principle that a policy of freedom for the individual is the only truly progressive policy remains as true today as it was in the nineteenth century.

Friedrich Hayek ability to lay out the striking contrast between freedom and coercion is a central reason for the impact The Road to Serfdom makes on thoughtful readers. And that is just as true 75 years after its publication as when he wrote it. And as we have chosen to move along the wrong road in many ways since, Hayek’s insights into freedom remain central to our ability to defend it from the many centralizing efforts that would eviscerate it.

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End Federal Prohibitions of Hallucinogenic Mushrooms

05/08/2019Ryan McMaken

UPDATE: As of late Wednesday, the de-criminalization measure managed to close the gap of what had earlier been a 55 to 45 percent loss. It looks like the measure has now narrowly passed, and voters' laissez-faire attitudes toward mushroom consumption apparently (barely) overcame other concerns. The article has been modified to reflect this outcome.

Denver's municipal election this year featured a ballot measure to decriminalize psilocybin mushrooms — or as the Phish groupies called them back in high school — "shrooms." The measure was narrowly approved by 50.5 percent to 49.5 percent.

Denver, of course, is a place that voted in the majority for the legalization of marijuana in 2012's successful statewide ballot measure — with 65 percent voting for legalization in Denver. Denver voters also voted in 2016 in favor of a city-wide ordinance allowing businesses to have designated areas for public consumption of marijuana.

So why did the decriminalization of psilocybin mushrooms barely pass this year?

Well, based on my thoroughly un-scientific survey of Denver voters, part of it may have been fear over the risk of mushroom enthusiasts flocking do Denver to enjoy local mushroom freedom.  In other words, given the lack of any other jurisdictions de-criminalizing psilocybin, some voters may have been less concerned about increased ease of access to mushrooms, and more concerned about attracting the sorts of people who use them.

This sort of thing was a relatively common complaint after marijuana legalization. Local residents rarely complained about the legality of marijuana, and few believed the hysteria of federal government agents — such as this guy — who maintained marijuana legalization would lead to a public health disaster.

On the other hand, many local residents were less than thrilled at the idea that potheads from across the nation would flock to the city primarily in to sit in their newly rented basements and smoke up all day.

Few had a problem with letting the existing local potheads be potheads, and few ever believed the propaganda that people otherwise uninterested in marijuana use would suddenly become addicts because of legalization. And there's still no evidence that has ever happened.

The problem stemmed from the perception that the proportion of potheads in the general population would increase substantially through in-migration from other states.

In the first few years following legalization, many local pundits and politicians asserted population growth and real estate prices were being driven quickly up by marijuana enthusiasts who were relocating solely to hit the bong, legally. The image this was intended to conjure up was one of scores of potheads pulling up in moving vans and moving in permanently.

It's unclear to what extent that was ever really true, though. And now that Massachusetts, Nevada, and the entire West Coast (including Alaska) have similarly overturned prohibition, few share this concern anymore.

However, when it came to de-criminalizing psilocybin mushrooms, fewer Denver voters may have been unenthusiastic about being pioneers this time around. Of course, even if the measure had passed, the situation would not have been very comparable to marijuana legalization. The city's DA noted "only 11 of more than 9,000 drug cases referred for possible prosecution between 2016 and 2018 involved psilocybin." Moreover, as a de-criminalization measure — as opposed to legalization — there wouldn't be any dispensaries popping up at the local strip mall.

Nevertheless, the prospect of local liberalization attracting more drug users is an unrecognized ace in the hole used by federal agents and regulators. Psilocybin remains a Schedule 1 drug  under federal law. By using nationwide federal policy to both mandate illegality — and to encourage similar state and local ordinances — federal agents can more easily isolate and fear-monger within communities considering legalization or de-criminalization within what is otherwise a uniform landscape of prohibition. Were state and local authorities truly left on their own when it comes to prohibitions of psilocybin mushrooms and similar substances, we'd likely see far more regional variation, and at least a notable minority of communities with varying degrees of laissez-faire.

As it is, federal policy sets the tone in favor of nationwide prohibition, and this makes it harder for any single community to break away from established federal policy, even if the voters don't fear the direct effects of the prohibited substance itself.

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What Mises Said about Rothbard

In the last decade or so, a handful of Austrian economists have been aggressively promoting a strange story of the postwar development of the Misesian tradition.  In their telling, Friedrich Hayek and Israel Kirzner were busily developing Mises’s approach to economic theory and method when Murray Rothbard showed up and shunted the methodological train onto the wrong track.  For this reason, Rothbard and his followers—who these storytellers collectively and derisively refer to as “the Rothbardians”—are to be read out of the Austrian movement.  In an article published last year, I explained why this story concocted by the “Rothbard deniers” is flat wrong and provided textual evidence that Mises and Hayek themselves, as well as Henry Hazlitt, would have disagreed with it.    

Just recently another piece of evidence turned up confirming Mises’s approval of Rothbard’s interpretation of his a priori economic methodology.  This is in the form of a letter written by Mises to fellow Mont Pelerin Society member and French positivist philosopher Louis Rougier.  Dr. Patrick Newman discovered the letter in the Mises archives at Grove City College and kindly shared a copy with me. 

In the letter, dated December 6, 1962, Mises is responding to criticisms of one of his books by Rougier.  Given the date of the letter and its focus on epistemology and methodology, the book in question is probably Mises’s last one, The Ultimate Foundation of Economic Science: An Essay on Method, published in 1962. In summing up his position, Mises writes:

The proof of the cake is in the eating.  I can only refer to the systematic exposition of the whole doctrine of praxeology in my book Human Action and nowadays in the brilliant book of a younger man, Murray N. Rothbard, Man, Economy and State. . . .

So Mises clearly considered Rothbard’s treatise as an updating and advancement of his own system of economic theory.  But this is not all.  After a paragraph recommending to Rougier his earlier book on the methodology of economics, Epistemological Problems of Economics, first published in German in 1933, Mises closes the letter with an entreaty to Rougier: 

But, please, first of all read the book of Rothbard.  It is very interesting also from the epistemological point of view. 

Given the evidence, including the words of Mises himself, I think that there remains little doubt that the mainline Misesian tradition in economic theory and method runs through Murray Rothbard. 

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Venezuela Needs Both a Political and an Ideological Change

05/03/2019Rafael Acevedo

As with everything in Venezuela, this week’s attempt at removing the Maduro regime was a mess. It seems to have had no coordination or logical planning. It consisted largely of opposition leader Juan Guaidó calling out civilians to support this attempt to take the control of the Venezuelan state, but with little effect. Some newspapers reported that Guaidó and ally Leopoldo López started to act before the plan was ready. Other sources say that high-ranking officers had negotiated with the U.S to keep Maduro in power. But one thing is sure: the current regime is still in place. Even more troubling is the fact some armored vehicles hit civilians that were on the streets protesting in favor of Guaidó. At the end of the day López with his family sought refuse in the Spanish embassy, and some military officers that were supporting Guaidó requested political asylum in Brazil’s Embassy. El Pais reports at least five people were killed in today’s chaos

Replacing the Current Regime with More of the Same?

Where to go from here? Venezuelans have suffered many disappointments, and there is a lot of skepticism in the population about the likelihood of replacing the current regime with something truly better. Here’s the problem: Venezuelans need to get rid of Maduro and his comrades, but we also need open the road to radical free-market reforms if they want to have a future with a long-run prosperity and liberty. In early March, Ben Powell and I wrote about this conundrum.

Unfortunately, the ideological fuel that would feed the engine of a new regime is not so different from the same that fed Chavez’s project. The “Plan País” supported by those seeking to topple Maduro is just another Keynesian recipe that will apply all the usual failed policies that have been used historically in Venezuela. In my country, this has only ever created a fake short-run “prosperity” which then creates cronyism, corruption, and an enormous states which owns of the commanding heights of the economy. In terms of human rights, a badly managed economy under some other group of hardline Keynesians might still be preferable to the current regime.

Nevertheless, at this time, it looks like an easy victory for replacing the Maduro regime with the opposition is not right around the corner. It looks increasingly like the best way to facilitate improvement would be for Guaidó and López to negotiate with Maduro for new elections, and more importantly to open the country to foreign capital yet again. With that in place there could be hope for an economic rebound. Of course, the government planners would still claim their intervention was the cause of the “economic miracle” that would come with stability, but we could at least hope for a gradual turn toward saner economic policy over time.

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A History Lesson: Comparing Socialist East Germany vs Capitalist West Germany

Donald Trump is an incoherent mix of good policies and bad policies.

Some of his potential 2020 opponents, by contrast, are coherent but crazy.

And economic craziness exists in other nations as well.

In a column for the New York Times, Jochen Bittner writes about how a rising star of Germany’s Social Democrat Party wants the type of socialism that made the former East Germany an economic failure.

Socialism, the idea that workers’ needs are best met by the collectivization of the means of production… A system in which factories, banks and even housing were nationalized required a planned economy, as a substitute for capitalist competition. Central planning, however, proved unable to meet people’s individual demands… Eventually, the entire system collapsed; as it did everywhere else, socialism in Germany failed. Which is why it is strange, in 2019, to see socialism coming back into German mainstream politics.

But this real-world evidence doesn’t matter for some Germans.

Kevin Kühnert, the leader of the Social Democrats’ youth organization and one of his party’s most promising young talents, has made it his calling card. Forget the wannabe socialism of American Democrats like Bernie Sanders or Alexandria Ocasio-Cortez. The 29-year-old Mr. Kühnert is aiming for the real thing. Socialism, he says, means democratic control over the economy. He wants to replace capitalism… German neo-socialism is profoundly different from capitalism. …Mr. Kühnert took specific aim at the American dream as a model for individual achievement. …“Without collectivization of one form or another it is unthinkable to overcome capitalism,” he told us.

In other words, he wants real socialism (i.e., government ownership). And that presumably means he also supports central planning and price controls.

What makes Kühnert’s view so absurd is that he obviously knows nothing about his nation’s history.

Just in case he reads this, let’s look at the evidence.

Jaap Sleifer’s book, Planning Ahead and Falling Behind, points out that the eastern part of Germany was actually richer than the western part prior to World War II.

The entire country’s economy was then destroyed by the war.

What happened afterwards, though, shows the difference between socialism and free enterprise.

Before…the Third Reich the East German economy had…per capita national income…103 percent of West Germany, compared to a mere 31 percent in 1991. …Here is the case of an economy that was relatively wealthy, but lost out in a relatively short time… Based on the official statistics on national product the East German growth rates were very impressive. However, …the actual performance was not that impressive at all.

Sleifer has two tables that are worth sharing.

First, nobody should be surprised to discover that communist authorities released garbage numbers that ostensibly showed faster growth.

May-3-19-Growth-Sleifer.jpg

What’s really depressing is that there were more than a few gullible Americans – including some economists – who blindly believe this nonsensical data.

Second, I like this table because it confirms that Nazism and communism are very similar from an economic perspective.

May-3-19-Nazi-Communist-Sleifer.jpg

Though I guess we should give Germans credit for doing a decent job on product quality under both strains of socialism.

For those who want to read further about East German economic performance, you can find other scholarly articles herehere, and here.

I want to call special attention, though, to a column by an economist from India. Written back in 1960, even before there was a Berlin Wall, he compared the two halves of the city.

Here’s the situation in the capitalist part.

The contrast between the two Berlins cannot miss the attention of a school child. West Berlin, though an island within East Germany, is an integral part of West German economy and shares the latter’s prosperity. Destruction through bombing was impartial to the two parts of the city. Rebuilding is virtually complete in West Berlin. …The main thoroughfares of West Berlin are near jammed with prosperous looking automobile traffic, the German make of cars, big and small, being much in evidence. …The departmental stores in West Berlin are cramming with wearing apparel, other personal effects and a multiplicity of household equipment, temptingly displayed.

Here’s what he saw in the communist part.

…In East Berlin a good part of the destruction still remains; twisted iron, broken walls and heaped up rubble are common enough sights. The new structures, especially the pre-fabricated workers’ tenements, look drab. …automobiles, generally old and small cars, are in much smaller numbers than in West Berlin. …shops in East Berlin exhibit cheap articles in indifferent wrappers or containers and the prices for comparable items, despite the poor quality, are noticeably higher than in West Berlin. …Visiting East Berlin gives the impression of visiting a prison camp.

The lessons, he explained, should be quite obvious.

…the contrast of the two Berlins…the main explanation lies in the divergent political systems. The people being the same, there is no difference in talent, technological skill and aspirations of the residents of the two parts of the city. In West Berlin efforts are spontaneous and self-directed by free men, under the urge to go ahead. In East Berlin effort is centrally directed by Communist planners… The contrast in prosperity is convincing proof of the superiority of the forces of freedom over centralised planning.

Back in 2011, I shared a video highlighting the role of Ludwig Erhard in freeing the West German economy. Given today’s topic here’s an encore presentation.

1.9 - Berlin and Price Controls

Samuel Gregg, writing for FEE, elaborates about the market-driven causes of the post-war German economic miracle.

It wasn’t just Ludwig Erhard.

Seventy years ago this month, a small group of economists and legal scholars helped bring about what’s now widely known as the Wirtschaftswunder, the “German economic miracle.” Even among many Germans, names like Walter Eucken, Wilhelm Röpke, and Franz Böhm are unfamiliar today. But it’s largely thanks to their relentless advocacy of market liberalization in 1948 that what was then West Germany escaped an economic abyss… It was a rare instance of free-market intellectuals’ playing a decisive role in liberating an economy from decades of interventionist and collectivist policies.

As was mentioned in the video, the American occupiers were not on the right side.

Indeed, they exacerbated West Germany’s economic problems.

…reform was going to be easy: in 1945, few Germans were amenable to the free market. The Social Democratic Party emerged from the catacombs wanting more top-down economic planning, not less. …Further complicating matters was the fact that the military authorities in the Western-occupied zones in Germany, with many Keynesians in their contingent, admired the economic policies of Clement Atlee’s Labour government in Britain. Indeed, between 1945 and 1947, the Allied administrators left largely in place the partly collectivized, state-oriented economy put in place by the defeated Nazis. This included price-controls, widespread rationing… The result was widespread food shortages and soaring malnutrition levels.

But at least there was a happy ending.

Erhard’s June 1948 reforms…abolition of price-controls and the replacement of the Nazi-era Reichsmark with much smaller quantities of a new currency: the Deutsche Mark. These measures effectively killed off…inflation… Within six months, industrial production had increased by an incredible 50 percent. Real incomes started growing.

And Germany never looked back. Even today, it’s a reasonably market-orientednation.

I’ll close with my modest contribution to the debate. Based on data from the OECD, here’s a look at comparative economic output in East Germany and West Germany.

May-3-19-East-v-West.jpg

You’ll notice that I added some dotted lines to illustrate that both nations presumably started at the same very low level after WWII ended.

I’ll also assert that the blue line probably exaggerates East German economic output. If you doubt that claim, check out this 1990 story from the New York Times.

The bottom line is that the economic conditions in West Germany and East Germany diverged dramatically because one had good policy (West Germany routinely scored in the top 10 for economic liberty between 1950 and 1975) and one suffered from socialism.

These numbers should be very compelling since traditional economic theory holds that incomes in countries should converge. In the real world, however, that only happens if governments don’t create too many obstacles to prosperity.

Originally published at International Liberty
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The Pentagon Doesn't Want to Report on Its Failed War in Afghanistan

05/02/2019Ryan McMaken

The US military's Afghanistan operation is going so well, the US military wants to stop telling you about it.

According to the AP:

Amid a battlefield stalemate in Afghanistan, the U.S. military has stopped releasing information often cited to measure progress in America’s longest war...

The move fits a trend of less information being released about the war in recent years...

A government watchdog agency that monitors the U.S. war effort, now in its 18th year, said in a report to Congress on Wednesday that the U.S. military command in Kabul is no longer producing “district control data,” which shows the number of Afghan districts — and the percentage of their population — controlled by the government compared to the Taliban.

The last time the command released this information, in January, it showed that Afghan government control was stagnant or slipping.

In other words, the US's 2-trillion-dollar effort there is going nowhere. So they're going to stop telling you about it.

This shouldn't be surprising, of course. Government legitimacy in general relies to a large extent on deception and on withholding information about the true cost, incompetence, and destruction of government programs and government policies.Governments hate releasing data on employee salaries, audits, spending, and metrics. Unless, of course, those metrics make the government look good.

Coming up with that make-us-look-good metric is often easy to do because it's easy for government agencies to track data on "how much stuff bought for x number of people" or "how many jobs created for Y number of government employees." Then, all they have to do is exclude any data about how many people weren't hired in the private sector because of government regulations and government taxes. They never mention the "stuff" that millions didn't get because of higher taxes. Governments naturally don't even try to collect that sort of data.

A similar phenomenon is seen in foreign policy. We hear all about how the government killed a dictator (i.e., Saddam Hussein or Moamar Qaddafi) while conveniently leaving out the fact these "humanitarian" missions just created power vacuums which paved the way for the rise of terrorist organizations like Al Qaeda.

When it comes to government programs, it's all benefits, and no costs.

So who can be surprised the Pentagon now wants to hide the fact the Afghanistan War is accomplishing nothing. After all, this might make it easier to point out the Pentagon is hugely over-funded. Moreover, the Pentagon has no idea what it even does with its money, since, as Reuters reported in 2016:

The Defense Department’s Inspector General, in a June report, said the Army made $2.8 trillion in wrongful adjustments to accounting entries in one quarter alone in 2015, and $6.5 trillion for the year. Yet the Army lacked receipts and invoices to support those numbers or simply made them up.

Disclosure of the Army’s manipulation of numbers is the latest example of the severe accounting problems plaguing the Defense Department for decades.

Unfortunately, it's fairly easy for military organizations to get away with this sort of fraud and data manipulation because they can always claim "national security" demands it. Many voters — often including those who fancy themselves proponents of "limited government" are happy to play along and declare the taxpayers have no right to second-guess the "experts."

The idea is the taxpaying public is too stupid or too ignorant to have anything other than worthless opinions when it comes to military and foreign affairs beyond the borders of the United States. Modern Americans have typically caved to this bullying tactic. Writing in the 1990s, however, at the end of the Cold War, Samuel Francis noted that such an attitude is incompatible with a free society :

The self-sufficiency, the civic independence, of the citizens of a republic, the idea that the citizens should support themselves economically, should be able to defend themselves,educate themselves, and discipline themselves, is closely connected to the idea of public virtue…A self governing people is simply too busy, as a rule, with the concerns of self-government to take much interest in other peoples’ business…A self-governing people generally abhors secrecy in government and rightly distrusts it. The only way, then, in which those intent upon…the expansion of their power over other peoples, can succeed is by diminishing the degree of self-government in their own society. They must persuade the self-governing people that there is too much self-government going around, that the people themselves simply are not smart enough or well-informed enough to deserve much say in such complicated matters as foreign policy…We hear it…every time an American President intones that “politics stop at the water’s edge.” Of course, politics do not stop at the water’s edge unless we as a people are willing to surrender a vast amount of control over what the government does in military, foreign, economic, and intelligence affairs.

Meanwhile, the government insists that the taxpayers have no right to privacy themselves. It's the taxpayers who need to be monitored, it seems. And Donald Trump apparently agrees. The Washington Post reported yesterday:

The Trump administration has signaled in recent weeks that it may seek the permanent renewal of a surveillance law that has, among other things, enabled the National Security Agency to gather and analyze Americans' phone records as part of terrorism investigations, according to five U.S. officials familiar with the matter.

So, while the military is cutting back on letting the public see its failures, the national security state insists that those who pay the bills submit to ever higher levels of surveillance.

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Reminder: The French State Owns Notre Dame

05/01/2019Ryan McMaken

In the wake of the Notre Dame fire, both French politicians and private donors, including billionaires, pledged to rebuild the Church. Emmanuel Macron promised — rather unconvincingly — to have the church rebuilt within five years.

In response, some observers questioned why a government should be in the business of rebuilding churches. After all, doesn't Notre Dame have insurance?

Well, it turns out Notre Dame doesn't have insurance, and that leads us to a larger problem with the church.

Notre Dame is a government-owned building. As a spokesman for the French consulate in New York told Marketwatch :

The French State is self-insured for Notre Dame. It has no insurance. It is supposed to cover its own costs.

Notre Dame has no private insurance because Notre Dame is not a privately owned building. Like all church buildings constructed before 1905, Notre Dame is owned by the French state.

As recounted by Samuel Gregg for the Catholic Herald, the Catholic Church lost ownership of church buildings during the French Revolution. While the Church gained usage of its buildings during Napoleon's reign, state control remains:

The Revolution’s subsequent war against the Church included turning Notre-Dame into a temple for “the Cult of Reason” and “the Supreme Being” in 1793. Shortly after Robespierre’s fall in 1794, the cathedral became a storage place for weapons and food. It was seemingly forgotten to history.

A few years later, Notre-Dame’s fortunes changed when Napoleon determined that his regime’s security required reconciliation between the Revolution and the Church. Though the state continued (and continues to this day) to own the buildings, exclusive use of the cathedral was transferred to the Church following the 1801 Concordat between Paris and Rome. ...Though the Concordat provided the Church with some protection from anti-clericals, it also once again subordinated much of the Church’s life to the French state.

State ownership was again affirmed in 1905 with the "loi du 9 décembre 1905 concernant la séparation des Églises et de l'État." The law affirmed that only church buildings constructed after 1905 could be privately owned by the Church itself.

Today, the French state controls more than 32,000 churches, 6,000 chapels, and 87 cathedrals.

Moreover, any attempts to significantly change church buildings would have to be approved by government officials, and according to The Art Newspaper , this state of "dual administration" has "caused serious problems of management and conservation":

Under French law, the parish council owns the building itself and its furnishings and puts these at the disposal of the clergy for acts of worship. The parish council is responsible for the maintenance and restoration of the building but does not pay for lighting, heating or expenses connected with religious observances, which are the responsibility of the clergy. No building works can be undertaken without the agreement of the parish council, and the parish priest may not sell objects or remove them from the church without the permission of the mayor. If the church is listed, or classified as a monument of particular historical interest, the permission of the Commission on Historical Buildings must also be sought.

This led to conflicts, especially in the wake of Vatican II, when Catholic clergy enamored of the new iconoclasm in the church attempted to destroy altars, railings, light fixtures, and other church elements deemed too old-fashioned. Some secular authorities, on the other hand, valued these items as art, and prevented parish priests from selling off or destroying them.

In those days, the French state served as a bulwark against the clergy's bad taste. Mid-twentieth century clergy, after all, were notorious in their vapid and trite artistic sensibilities, which they pursued as a cloying display of their alleged devotion to the common man.

Had Notre Dame burned sometime between 1965 and 1980, French bishops probably would have insisted it be rebuilt with a brutalist spire of poured concrete.

Fortunately, most of those clerics are now dead, and few Catholics under age 50 think 1970s-style church architecture, furnishings, and art are nearly as charming as their elders seemed to think. This means the primary threat to Notre Dame now comes form the French state itself. Already, the terrible restoration ideas are pouring in, with suggestions ranging from a new glass-and-steel roof, to a spire designed to look like an Islamic minaret.

Since the French state owns Notre Dame, it's not a given the building will be actually rebuilt as a church. As I've noted before, many Frenchmen — including Macron and many of the donors — appear to regard the building's primary importance as that of a museum and community center. This could mean anything goes as far as reconstruction is concerned.

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Holcombe on Political Capitalism

04/27/2019David Gordon

Political Capitalism: How Economic and Political Power is Made and Maintained. By Randall G. Holcombe. Cambridge University Press, 2018. X + 294 pages.

Randall Holcombe is best known as an economist for his work in public choice, but in this impressive new book, he adds a historical dimension to public choice by combining it with “elite theory.” In doing this, he arrives at a controversial thesis: a new economic system, “political capitalism,” has come to replace market capitalism. In arguing for his thesis, Holcombe shows a remarkable knowledge of the literature in economics, political science, and sociology.

By “political capitalism”, Holcombe means the same as what is often called “crony capitalism,” and as he notes, the concept is a well-established one. There is widespread agreement by people with different political views that the American economy is dominated by an alliance of elite business and political interests. David Stockman and Joseph Stiglitz are usually at odds, but not here. Stiglitz argues, “’We have a political system that gives inordinate power to those at the top, and they have used that power not only to limit the extent of redistribution but also to shape the rules of the game in their favor.’ Echoing those views, Stockman says. . .’the state bears an inherent flaw that dwarfs the imperfections purported to afflict the free market, namely that policies undertaken in the name of the public good inexorably become captured by special interests and crony capitalists who appropriate resources from society’s commons for their own private ends.’” (p.5) (Besides the many works that Holcombe cites, the outstanding book of Hunter Lewis, Crony Capitalism in America, deserves mention in this connection.)

Holcombe contends that political capitalism is a new system, distinct from market capitalism and socialism. The term, he tells us, comes from Max Weber, who used it to “describe the political and economic systems of ancient Rome.” (p.8). Holcombe applies the concept to contemporary America.  “The analysis that follows concludes that political capitalism, in which the political and economic elite control the system for their own benefit, is not market capitalism and should be analyzed as a separate economic system.” (p. ix) It is this thesis that I should like to examine.

He argues for it by extending the public choice analysis of government by James Buchanan and Gordon Tullock. These economists challenged, though they did not altogether reject, the standard neoclassical contention that the free market cannot adequately supply public goods and so needed to be supplemented by state intervention. In the standard view, economic actors motivated by self-interest will tend to “free ride,” relying on others to produce public goods. The consequence is an underproduction of them.

Buchanan and Tullock posed a devastating question that weakened the force of the standard view’s policy conclusions, though doing so without challenging the assumptions of the neoclassical model. Why assume that government policymakers are less self-interested than market actors? “Government is not omniscient. Policymakers do not have all the information necessary to allocate resources to match the theoretically optimum welfare maximum. Government is not benevolent. People in government look out for their own interests just as people do in the private sector. Their incentives need to be taken into account to understand how public policy works in the real world.” (p.14)

Buchanan and Tullock rejected theories of group exploitation, but Holcombe does not agree: “Buchanan and Tullock ‘also reject any theory or conception of the collectivity which embodies the exploitation of a ruled by a ruling class. This includes the Marxist vision, which incorporates the polity as one means through which the economically dominant group imposes its will on the downtrodden.’ The public choice approach to analyzing political decision making, as Buchanan and Tullock see it, leaves no room for the group behavior and elite theories that are the subject of this chapter[and book].” (pp.64-65)

How does Holcombe accept group exploitation theories without rejecting Buchanan and Tullock’s stress on the motivations of individual actors? The key to the mystery lies in the Coase theorem. “When transaction costs are low, people can bargain to allocate resources in a way that maximizes the value to the members of the low-transaction cost group---the people who are able to bargain. When transaction costs are high, people will not be able to bargain to allocate resources to maximize the value to them. . .The people in the low-transaction group bargain with each other to make public policy. The people in the high-transaction cost group . .. .find themselves subject to the policies designed by those in the low-transaction cost group. Those in the low-transaction cost group are the elite; those in the high-transaction cost-group are the masses.” (p.76)

This difference in transaction costs permits the continuity over time that elite theory requires. So long as the difference persists, long-lasting dominance by an elite group or class is possible. For example, incumbents in Congress, regardless of party, are often allied against challengers. Owing to the difficulty of ousting them, they can retain power for a substantial period of time. “Those who have political power conspire to keep it, and have more in common with each other than with others in their same party who do not have that power. . The more significant dimension of political competition is between those who with power versus their challengers for that power, not the competition of one party against another. This is true in political capitalism, but also true of government in general.”(p.191)

Holcombe devotes a great deal of attention to the mechanisms of rent-seeking and regulatory capture, by which elites in government join forces to exploit the masses. It is sometimes difficult to tell whether government or business interests dominate the coalition. In one maneuver, the legislature will threaten to pass laws that would adversely affect certain interests, inducing the interested parties to offer “donations” to induce the legislature to turn its attention elsewhere. “Those in government have an incentive to extract payment in exchange for legislative action, or inaction, and those who are paying have an incentive to continue paying to avoid having costs imposed on them.” (p.129)

Holcombe’s argument within its own terms is powerful, but it suffers from a limitation that the more wide-ranging approach of Murray Rothbard avoids. The public choice school says, in effect, “Politicians are not impartial public servants, aiming for the good of all. They too are self-interested actors.” Everyone’s dominant motivation is to gain wealth, and ideological considerations play a minor role. Why, for example, do incumbents want to remain in power? The primary reason as Holcombe views the matter is to extract economic rents.

Rothbard allows far more room to those dominated by ideas, though he also emphasizes people’s economic self-interest. People made the American Revolution, for example, in part because they genuinely believed in the ideals stated in the Declaration of Independence. Lenin genuinely believed in communism: he did not start the October Revolution to make himself a millionaire. It is of course true that both of these revolutions also benefited some at the expense of others.

To this contention, there is a well-known public choice response, best expressed in Gordon Tullock’s The Social Dilemma. Revolutionary action is a public good, and ideological revolutionaries will prefer to free ride on the actions of other revolutionaries, thus avoiding costs to themselves. Even if this analysis is correct, it proves less than Tullock and other exponents of public choice think it does. Tullock has applied the standard neoclassical analysis of public goods to revolutions, but, as previously mentioned, the standard model concludes that a public good will not be supplied efficiently. It does not hold that the good will not be supplied at all. If Tullock is right, perhaps we have less than the efficient quantity of ideological revolutions. But the historical record shows that we have some of them.

Given the malign effects of political capitalism, Holcombe naturally wonders what can be done to restrain it. He says that his book is concerned primarily with an analysis of the system rather than remedial action, but he does suggest that limiting the power of the state through constitutional checks and balances is desirable. Such limits hold some promise to impede a rapacious government. The Progressive movement of the late nineteenth and early twentieth centuries favored government action to limit corporate predation, but this did not work: “The Progressive ideology legitimizes the use of force for the economic benefit of some at the expense of others.” (p.230) Holcombe’s suggestions are all to the good, and he has written in greater detail with insight and erudition about this topic in From Liberty to Democracy.

There is another limit to political capitalism, and explaining it requires us to challenge Holcombe’s central thesis that political capitalism is a new economic system. From a Misesian point of view, there are no intermediate economic systems between capitalism and socialism. As Mises remarks: “With regard to the same factors of production there can only exist private control or public control. “ (Human Action, Scholar’s Edition, p.712) Measures of the sort analyzed in Holcombe’s book hamper the free market, but they do not provide an alternative way to allocate resources efficiently. If political capitalism were a “third system,” it would be faced with the calculation problem. Because economic calculation requires a free market, political capitalism is inherently parasitic on the free market and this is a barrier to the damage it can do. Given its bad results, that is small consolation.

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