Power & Market
Just Sayin'
A Blockchain Study Finds 0.00% Blockchain Success Rate . The study reported also reported 0 vendor call backs when asked for evidence of implementation.
Though Blockchain has been touted as the answer to everything, a study of 43 solutions advanced in the international development sector has found exactly no evidence of success.
Three practitioners including erstwhile blockchain enthusiast John Burg, a Fellow at the US Agency for International Development (USAID), looked at instances of the distributed crypto ledger being used in a wide range of situations by NGOs, contractors and agencies. But they drew a complete blank.
"We found a proliferation of press releases, white papers, and persuasively written articles," Burg et al wrote on Thursday. "However, we found no documentation or evidence of the results blockchain was purported to have achieved in these claims. We also did not find lessons learned or practical insights, as are available for other technologies in development."
Noah Smith Wants Harvard to Abandon Its Devotion to "Libertarian" Economic Theory. Really.
Let's talk about Econ 101, scientism and modern economics.
At Bloomberg, Noah Smith argues that Greg Mankiw's Principles of Economics textbook is out of date because academic economists are more concerned with empirics and wealth inequality.
Furthermore, Smith pushes the view that economic theory itself is outdated. Not only because academic economists no longer study it or care about it, but supposedly because empirics have proven the laws of economics to be out of touch with reality.
He purports that Mankiw proposes theoretical insights that are skewed against redistribution because of his "libertarian political slant." This just seems to be another way of saying that it avoided most Keynesian mathematics and empiricism and focused on the foundational theory.
Many libertarians derive their views on economics from the Austrians. It's worth noting that Mankiw admittedly never read any Austrian economists in undergrad or grad school and only first read Hayek and added a note on Hayek to the 4th edition of his text in the mid-to-late 2000's. If you're conflating politics with economics, Mankiw is far from an Austrian or Austro-libertarian.
Smith neither addresses Mises' a priori defense of economic theory, or praxeology, nor Hayek's criticism of the scientism of the social sciences.
Smith also doesn't address the obvious: economic incentives explain the rise in empiricism in academia. And the politicization of the economy and growth in government explains why the economics professions have shifted politically left and focused their efforts on income distribution.
Smith states that new empirical methods prove that the assumption that economic actors are perfectly rational is false and uses this insight to disparage economists and libertarians relying on insights derived from the foundations of economics.
Disparaging Mankiw's lessons as skewed by libertarian thought ignores the fundamentals of Austro-libertarian economics. Mises did not rely on a view of perfect rationality to arrive at economic conclusions or to confirm the laws of economics. As Mises stated in Theory and History:
The sciences of human action starts from the fact that man purposefully aims at ends he has chosen. It is precisely this that all brands of positivism, behaviorism, and panphysicalism want either to deny altogether or to pass over in silence.
I will conclude with Mises' address to this very debate:
Economic statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events.
While Mankiw is no Austrian, we should not let Smith dictate the discussion or get away with wrongly conflating various economic and political views given that he's completely ignoring long-standing economic explanations that address his criticism of foundational economic insights.
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Recession Will Turn Debt Into Junk
Diane Swonk says the 20,000 payroll number for February was a head fake. She blamed bad weather, the government shutdown, and other gobbledygook to explain away the 160,000 job miss for the year’s shortest month.
According to Michael Snyder, in a piece posted on Zerohedge.com,
The U.S. economy is growing at a 0.3 percent annualized rate in the first quarter , based on data on domestic construction spending in December released on Monday, the Atlanta Federal Reserve’s GDPNow forecast model showed.
Mr. Snyder lists 18 data points on his blog “ The Economic Collapse ” supporting the idea that an economic winter is coming.
#1 Farm loan delinquencies just hit the highest level that we have seen in 9 years .#2 We just learned that U.S. exports declined by 4 billion dollars during the month of December.
#3 J.C. Penney just announced that they will be closing another 24 stores .
#4 Victoria’s Secret has just announced plans to close 53 stores .
#5 On Thursday, Gap announced that it will be closing 230 stores over the next two years.
#6 Payless ShoeSource has declared bankruptcy and is closing all 2,100 stores .
#7 Tesla is also closing all of their physical sales locations and will now only sell vehicles online.
#8 PepsiCo has started laying off workers and has committed to “millions of dollars in severance pay” .
#9 The Baltic Dry Index has dropped to the lowest level in more than two years .
#10 This is the worst slump for core U.S. factory orders in three years .
#11 We just witnessed the largest decline in the Philly Fed Business Index in more than 7 years .
#12 In January, sales of existing homes fell 8.9 percent from a year earlier. That was the third month in a row that we have seen a decline of at least 8 percent. This is an absolutely catastrophic trend for the real estate industry.
#13 U.S. housing starts were down 11.2 percent in December compared to the previous month.
#14 Compared to a year earlier, home sales in southern California were down 17 percent in January.
#15 In December, home sales in Sacramento County fell a whopping 22.5 percent compared to a year earlier.
#16 Pending home sales in the United States have now fallen on a year over year basis for 13 months in a row .
#17 More than 166 billion dollars in student loan debt is now “seriously delinquent” . That is an all-time record.
#18 More than 7 million Americans are behind on their auto loan payments. That is also a new all-time record, and it is far higher than anything that we witnessed during the last recession.
None of this has kept individuals, companies and governments from ramping up debt levels. Leverage abounds, everywhere. Grant’s Interest rate Observer writes, “companies are tapping credit lines to compensate for shortfalls in cash flow.”
Defining a zombie company as one failing to generate cash flow to cover interest expense for three consecutive years, Grant’s points out that 128 companies in the S&P 1500, fit the description. The percentage of living dead has increased over the past 12 months, ending January 31st, from 12.4 percent of the broad index to 13.6 per cent.
Money manager Jeff Gundlach told Grant Williams on Real Vision ,
the economic data continues to deteriorate. And we're starting to see reversals and unemployment claims now rising on a four week moving average basis. We're starting to see earnings estimates collapsing, margin estimates collapsing, sales dropping. You see housing is negative, Surprise indices-- confidence is deteriorating. None of these things are at the alarm-bell recession, but they're getting fairly close.
Gundlach and Williams spoke about the 800 pound elephant in the room, the U.S. government’s off balance sheet obligations. “123 Trillion, six times GDP. If we wanted to fund our liabilities, the 123 trillion-- over the next 60 years, we'd have to put 10% of our GDP aside, from negative 7 today to plus 10,” Gundlach quipped.
After reflecting on investors buying AAA-rated mortgage-backed bonds back in 2005, believing they were playing it safe, Gundlach said,
Well, we have similar-- maybe not as egregious-- but it's an echo of a rating problem in the bond market right now, in the corporate bond market, where the corporate bond market has exploded in size. It's more than double where it was 10 or 12 years ago, and a lot of it is, I think, overrated. There was a report by Morgan Stanley Research that suggested that fully, fully 45% of parts of the corporate bond market would be rated junk right now, if you use leverage ratios alone. Now, they use more than leverage ratios.
There's other variables that go into rating. But the leverage ratio seems to be really important.
Right now the ratings agencies are buying what debt issuers are selling —a rosy future. But with recession clouds gathering, Gundlach figures,
there's not going to be any working towards a better place. And so all of those bonds potentially could be downgraded into a junk status. And as we all know, when a triple-B-rated corporate bond crosses the line into junk status, the price goes down. It doesn't go up. So you can find people that have poured into corporate bonds-- that includes corporate pension plans-- which thought that they had a clever idea of matching up their liabilities, which are discounted by the single-A long corporate rate, and so let's match them with assets that are corporate bonds, so they move together.
As I wrote a couple weeks ago, when debt turns to junk, ETFs and institutional holders will desperately be looking to sell at any price. “So will they sell?” Gundlach wonders rhetorically. “I think the answer is yes. And so if you have a misrated market, and it goes into a downgrade problem, you get tremendous forced selling. And that's what happened in '08 with the securitized market, and this time, I think it's the corporate bond market's turn.”
MacroMavens Stephanie Pomboy echos Gundlach’s view,
In 2007, the lie was that you could take a cornucopia of crap, package it together, & somehow make it AAA. This time, the lie is that you can take a bunch of bonds that trade by appointment, lump them together in an ETF, & magically make them liquid.
So, with this storm brewing, the Fed’s committee to save the world has started its roadshow.
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How Many Economists Still Get Subjective Value Wrong
Subjective value is not objective. Sounds obvious, but the distinction is lost on most — scholars and practitioners alike.
People seem to think subjective value is simply a person's 'willingness to pay' a price. Well, it's not. Subjective value cannot be expressed in dollars and cents, because that would simply mean subjective value is an expression in terms of objective market purchasing power.
If value is subjective, however, that purchasing power too is subjectively valued, in terms of what subjective value it can provide (through the actual goods and services the money can purchase). And, in any market-like setting, willingness to give up purchasing power for a good only indicates that the person subjectively values that purchasing power (however it is appreciated by him/her) less than the value expected from the good that can be purchased.
Willingness to pay, expressed in the dollars and cents that in turn can command goods and services, only means the buyer expects to be better off from going through with the exchange. In terms of value theory, there may be no connection between the value of that which is forgone and that which is gained in return, other than them being valued differently (the former higher than the latter).
Scholars should know better than to confuse these things, but they're obviously quite confused.
Instead of thinking about the meaning of what they say, they adopt a practical shorthand used to get a dollar amount on a customer's valuation. This makes some sense from a practitioner's perspective, where a customer's willingness to pay for one's good is a rough estimate of what money price could potentially be charged for the good.
It's not accurate, however, which is why entrepreneurship models suggest that entrepreneurs should make sure to charge a price lower than customer's stated willingness to pay (if it can at all be trusted).
Also, the actual willingness to pay depends on offering the actual good along with the argument for why it would be valuable for the customer to have/buy it.
In a different time and place, and with different messaging, this 'willingness' changes both with how the good is subjectively appraised and with the other opportunities available to the customer. I might value a hamburger, but I value a hot dog more.
Consequently, if there are hot dogs my willingness to pay for hamburgers is practically zero; if there are no hot dogs in sight, my willingness to pay for hamburgers may be significant. See how this works?
One's willingness to pay is not about the [subjective] value of the good itself (that is, the satisfaction experienced, or in any case expected), but is contingent on alternatives available. Practitioners who are careful can gain insights from willingness-to-pay estimations. But it is still a very blunt tool, since what actually matters is the subjective valuation of a good and the subjective valuation of alternative goods (the comparison/tradeoff).
That scholars equate subjective valuation with objective money prices should be considered severe professional misconduct. For those who are in the business of thinking carefully about things, there is no place for conflating things.
Or, as in this case, mistaking (interpreting, really) subjective value for being objective. This is inexcusable and should disqualify you from the academy.
Originally published on Twitter @PerBylund
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College Admissions Scandal: More Meddling by the Feds
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Bipartisan Attacks on the Second Amendment
A nationwide system of gun registration could be a step toward national gun confiscation. However, antigun bureaucrats need not go that far to use the expanded background check system to abuse the rights of gun owners. Gun owners could find themselves subject to surveillance and even harassment, such as more intensive screening by the Transportation Security Administration, because they own “too many” firearms.
Republican control of the White House and the Senate does not mean our gun rights are safe. Republicans have a long history of supporting gun control. After the 1999 Columbine shooting, many Republicans, including many who campaigned as being pro-Second Amendment, eagerly cooperated with then-President Bill Clinton on gun control. Some supposedly pro-gun Republicans also tried to pass “compromise” gun control legislation after the Sandy Hook shooting.
Neoconservative Senator Marco Rubio has introduced legislation that uses tax dollars to bribe states to adopt red flag laws. Red flag laws allow government to violate an individual’s Second Amendment rights based on nothing more than a report that the individual could become violent. Red flag laws can allow an individual’s guns to be taken away without due process simply because an estranged spouse, angry neighbor, or disgruntled coworker tells police the individual threatened him or otherwise made him feel unsafe.
President Trump has joined Rubio in wanting the government to, in Trump’s words, “take the guns first, go through due process second.” During his confirmation hearing, President Trump’s new Attorney General William Barr expressed support for red flag laws. California Senator and leading gun control advocate Dianne Feinstein has expressed interest in working with Barr to deprive gun owners of due process. It would not be surprising to see left-wing authoritarians like Feinstein work with right-wing authoritarians like Barr and Rubio on “compromise” legislation containing both a national red flag law and expanded background checks.
My years in Congress taught me that few politicians can be counted on to protect our liberties. Most politicians must be pressured to stand up for freedom by informed and involved pro-liberty citizens That is why those of us who understand the benefits of liberty must remain vigilant against any attempt to erode respect for our rights, especially the right to defend ourselves against private crime and public tyranny.
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Notes on Fed Chair Jerome Powell's 60 Minutes Non-Interview
Jerome Powell, Chairman of the Federal Reserve Board of Governors, appeared on the TV magazine 60 Minutes last night. If you're craving empty calories, watch it here. The whole interview was an exercise in banal pleasantries, not to mention deadly dull. It's what we've come to expect from Fed Chairs, nothing to see here, move along...
But financial twitter, including our friend Danielle DiMartino Booth, was not impressed:
Granted, this was 60 Minutes and not Bloomberg or the Wall Street Journal. It was a puffball interview. But is it too much to ask the man who holds tremendous sway over our financial well-being to give the American people a substantive primetime interview? Go back and listen to presidential debates thirty years ago, or old Firing Line shows. We weren't always subjected to dumbed down cartoon versions of policy issues. If Americans can't—or won't—understand the basics of central banking, we really do have bigger problems than unaccountable technocrats at the central bank.
A few notes:
First, it's apparent Mr. Powell has developed his own brand of non-speak. For all his talk of a more transparent Fed, he's still a lawyer who uses language carefully to the point of obfuscation. He's not as opaque and wordy as Alan Greenspan, who could issue forth for several minutes without saying anything comprehensible. He's not as stiff or suspicious as the always-guarded Ben Bernanke. No, Powell sounds more like Chance the Gardener in Being There: monotone assurances that "growth will be healthy," the U.S. economy is "in a good place," and the Fed must be "patient" when assessing interest rates.
Second, reporters do a uniquely bad job covering the Fed. We don't know much about Scott Pelley at 60 Minutes, but his idea of a tough question was whether Trump had the power to fire a Fed Chair (he finally got Powell to squeak "No" after a bit of dissembling about legal consensus). Where were the questions about quantitative easing, the most radical monetary policy in human history? How about the Fed's enormous balance sheet, and whether in fact it will be unwound? Can money and credit simply be created without harm to the economy? Can the U.S. federal government continue to service its debt if interest rates rise into the historically average 5-10% range? Is inflation really as low as Chairman Powell claims, or do grocery shoppers know better? How about the moral hazards involved with reinflating equity and housing markets? Or why not just a homespun question about how elderly savers are expected to manage when money market and CD rates are below 3%?
These are all simple, essential questions which would help Americans gain a sense of Mr. Powell's confidence in the big picture. 60 Minutes could have enjoyed a rare scoop, bringing the vital but critically under-examined topic of monetary policy to a big audience. But instead we got to hear Powell's views on the opioid crisis and immigration, and his soft murmurs about muted inflation. What a wasted opportunity.
Finally, we've heard versions of the "cautiously optimistic" mantra so many times it begins to sound like a sedative. Alan Greenspan said it in the late 90's and then stocks blew up. Ben Bernanke saw nothing particularly untoward in U.S. housing markets in 2007. Janet Yellen believes we won't have another financial crisis "in our lifetimes" (she's in her 70s...). And now Jay Powell "sees no reason" the economy can't keep chugging along (even though he recently backpedaled on rate hikes and aggressively tapering the Fed's swollen balance sheet). And of course that's true until it isn't.
The lesson here is plain for all who will see it: booms and busts are engineered and created by central banks, not by some mysterious manifestations of markets themselves. They can be traced back to expansionary monetary policies in the past. in 2019 we're going on ten years of boom, one of the longest in American history. If things go south, as they did in 2008, the Fed has far fewer tools at its disposal—and the world has far more debt. As Professor Per Bylund reminds us, central bankers ought to spend more time learning what causes bubbles instead of scrambling to figure out what burst them after the fact.
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Jeff Deist Joins TV Azteca to Discuss Free Markets and Liberty
During a recent trip to Mexico City, Jeff Deist was able to join Sergio Sarmiento of TV Azteca's adn40 for a great discussion on the meaning of liberty and the power of markets.
The interview is available here.
The Mises Institute been excited to increase our reach in the Spanish speaking world in recent years thanks to trips like this, as well our growing library of Spanish-language translations available at Mises.org/es.
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Bovard: Ethiopia Crash of Boeing 737 Max Might Be Latest Example of Backfiring Safety Efforts
Another Boeing 737 crashed Sunday in Ethiopia, killing all 157 aboard. This is the second crash of the new Boeing model Max 8 since October. Investigators have only begun sorting out this tragedy but some experts suggest that the plane’s automated safety software may have prevented the pilot from preventing the fatal plunge.
If software and sensors designed to prevent crashes actually increased the risk of catastrophe, then the Boeing accidents are another reminder that safety policies can have unintended fatal consequences.
Unfortunately, policymakers routinely ignore the unforeseen costs of well-intended safety efforts. For instance, the Transportation Security Administration, seeking to make air travel perfectly safe from terrorists in the months after 9/11, spawned airport checkpoint regimes that are so intrusive that many Americans choose to drive instead. A Cornell University study estimated that TSA’s heavy-handed policies helped boost traffic fatalities by at least 1,200 additional deaths.
A Business Week analysis noted, “To make flying as dangerous as using a car, a four-plane disaster on the scale of 9/11 would have to occur every month, according to an analysis published in the American Scientist.…People switching from air to road transportation in the aftermath of the 9/11 attacks led to an increase of 242 driving fatalities per month — which means that a lot more people died on the roads as an indirect result of 9/11 than died from being on the planes that terrible day.”
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Americans Have Much More Living Space than Europeans
In the United States, local governments continue to play a sizable role in constraining the amount of develop-able land, and in adding costs to housing development in the form of development fees, zoning, building-materials mandates, and minimum-size mandates.
Yet, housing continues to cheaper in the US when compared to much of the world.
According to the OECD, for example, housing expenditure in the United States is 18 percent of gross adjusted disposable income. That's the third-lowest in the OECD. Moreover, housing costs in the US by this metric are only 75 percent the size of what they are in Denmark and the United Kingdom. US costs are 78 percent the size of housing costs in Italy.1
Similarly, the OECD notes that in the United States, there are on average 2.4 rooms per person. Only Canadians have more rooms per person. In Switzerland, Spain, Denmark, and Japan, however, there are only 1.9 rooms per person. That's one-fifth less than the average in the US.2
And the number of rooms aren't the only metric by which US homes are bigger. According to the BBC, floor space in newly built homes in the United Kingdom is less than half of what it is in the United States:
Scholars have also noted these differences for years. In their book Living Wages Around the World: Manual for Measurement by Richard Anker and Martha Anker note:
Floor space is higher still in the United States where households at the 20th percentile ofthe houshold income distribution had 28.8 square meters per person in 1985 and 33.5 square meters per person in 2005, implying around 115 and 134 square meters respectively for a lower income household of 4 persons.
In other words, as the BBC chart shows, the square footage for a lower-income household in the US is similar to the overall average for living space in France.
Growth in home size is larger in the US as well. According to State of the World 2004, write:
The United States represents the extreme case, where average new homes grew nearly 38 percent between 1975 and 2000, to 210 square meters (2,265 square feet) twice the size of typical homes in Europe or Japan and 26 times the living space of the average person in Africa.
And certain amenities are bigger in the US:
The average size of refrigerators in US households, for example, increased by 10 percent between 1972 and 2001, and the number per home rose as well. Air conditioning has taken a similar path: in 1978, 56 percent of American homes had cooling systems, most of which were small window units; 20 years later, three quarters of US homes had air conditioners and nearly half were large central systems.
Square footage isn't the only measure of living space either, As noted in Perspectives on the Performance of the Continental Economies edited by Edmund S. Phelps, Hans-Werner Sinn
A considerable part of the US advantage in cross-country comparisons of living standards must stem from the much larger size of average American swelling units, both their internal dimensions and the amount of surrounding land. Fully three-quarters of the American housing stock consists of single-family detached and attached units. The median licing area in the deteched units is 1,720 square feet, with an average acreage for all single-family units of 0.35 (equivalent to a lot size of 100 by 150 feet or 1,394 square meters). Another figure that must seem unvelievable to Europeans is that fully 25 percent of American single-family units rest on lots of one acre or more, equivalent to 4,052 square meters. Available data, though spotty for Europe, suggest that the average American dwelling unit is at least 50 to 75 percent larger than the average European unit.
These factors ought to be considered when we look at disposable income comparisons between countries. "Disposable income" tells us about the cash income that people receive, but these measures tell us little about some of the differences in the standard of living and cost of living as they vary form place to place. For whatever reasons, Americans have for decades preferred to exchange a higher cost of living in many cases for a larger amount of living space. It doesn't have to be this way. Americans could have preferred to economize on housing in order to spend more on other living expenses. But they have not. Instead, a great many Americans have chosen to reinforce both private sector and public sector policies that produce larger housing units.
- 1. This data point includes rental housing. See: "Better Life Index, Edition 2017" https://stats.oecd.org/Index.aspx?DataSetCode=IDD
- 2. Rate = number of rooms divided by the number of people living in the dwelling. OECD states: "This indicator refers to the number of rooms (excluding kitchenette, scullery/utility room, bathroom, toilet, garage, consulting rooms, office, shop) in a dwelling divided by the number of persons living in the dwelling."
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