Power & Market
On November 1, Mario Draghi’s tenure as governorof the European Central Bank (ECB) will expire, and the European Council will appoint a successor for the role. Moreover, it is now known that northern European countries are pushing for replacing Mr. Draghi — widely recognized as a “dove” — with a “hawk” — less accommodating toward the loose monetary policy being demanded by southern European states. Most especially, Italy.
On the other hand, there are plenty of economic considerations — besides the historical and political ones blaming the alleged excessive (but totally sensible and legitimate) German fear of hyperinflation — which support the northern European preference for a less accommodating governor, and a tighter monetary-policy stance. Let’s look at three of them, which are the most prominent amongst several others:
One: From March 2015 onwards, the Quantitative Easing program (QE, officially known al the Asset Purchasing Programme, APP) implemented by the ECB has been distorting the relative prices of European private and public bonds, delivering a perfect textbook-case of how Cantillon-effects distort the economy. Indeed, for instance, the current difference between the yield of American 10-year government bonds and Italian ones is much lower than the same difference between German 10-year government bonds and American ones, in spite of the total absence of macroeconomic fundamentals to account for this fact. Moreover, as figure 1 and 2 show, the Asset Purchasing Programme has been highly biased towards its public-sector branch (PSPP, Public Sector Purchasing Programme, painted in blue). This also distorts the relative prices of private and public securities, and brings about a crowding-out effect damaging private investments;
Two: From a historical and political perspective, Italy has been blatantly breaching the deals — i.e., the 1992 Maastricht treaty and the 1997 Amsterdam treaty — requiring limits of its public debt over a GDP ratio to the 60% level. In practice, this has reached a historical post-war peak of more than 132%. Hence, it is evident that Italy has been only reaping the benefits stemming from European integration. This includes lower public expenditure for debt-interests (from 12.2% in 1993 to 3.7% in 2018), monetary stability, low inflation, and commercial integration. Of course, northern states are no longer willing to let Italy have everything it wants, and are perfectly aware that Italy has been the country gaining the most in terms of lower interest on its public debt brought about by Mr. Draghi’s monetary policies;
Three: The central bank has been claiming these inflations are “justified” by the alleged empirical evidence entailed by the Phillips-curve. The central bankers have been lamenting excessively low inflation within the Eurozone, and Mr. Draghi has expanded the Eurozone’s monetary base up to a level equal to 28% (3.217-trillion euros) of its GDP. Meanwhile, the American monetary base has been reduced to a level lower than 17% of American GDP. This, combined with a stable — even though low — growth in the Eurozone, with a macroeconomic outlook close to its full potential (even Italy, the weakest of all European economies, is predicted to have an output gap equal to -0.3% of GDP in 2019 and -0.1% of GDP in 2020, thus practically reaching its full potential output) and the fear of an economic slow-down caused by trade-wars, has convinced north-European politicians that the current monetary-policy stance is no longer what Eurozone — as a whole — needs. (Even Italy, the weakest of all European economies, is predicted to have an output gap equal to -0.3% of GDP in 2019 and -0.1% of GDP in 2020, thus practically reaching its full potential output.)
Lastly — and subsuming the three aforementioned bullet-points — a “hawkish” ECB-governor would be also in the interest of Italy itself. After all, Mr. Draghi’s monetary-policy stance has allowed Italian governments to keep implementing unsustainable fiscal policies without sustaining the associated economical and political costs, such as higher public expenditures for debt-interests and lower bank-lending. The latter is being caused by the huge exposure of Italian commercial banks to Italian sovereign risk.
Ultimately, northern-European savers, the stability of the monetary union and — especially — Italy itself do not need a lovely, charitable and “dovish” mother at the central bank. We need, rather, a stark, strict and “hawkish” tutor.
If you're not familiar with Denson's work, he is the Distinguished Scholar in History and Law here at the Mises Institute. He is also a practicing attorney in Alabama and the editor of two books, The Costs of War and Reassessing the Presidency, and the author of A Century of War: Lincoln, Wilson and Roosevelt.
Private roads shine in their ability to smooth and reduce traffic, and as a result, save our time, save billions of dollars of labor and leisure hours, and reduce pollution from cars.1 Moreover, they would save the lives of a portion of the tens of thousands of annual victims of fatal crashes by making roads safer. This cornucopia of benefits is made possible by introducing currently government-run roads to market prices, allowing consumers to coordinate who drives when and how much, and signaling to entrepreneurs to enlarge road systems and design them to be smoother-flowing and safer to capture profits from consumers who demand these services. However, skeptics criticize the viability of private roads on the grounds, among others, that roads are natural monopolies. The might of the market overcomes this concern.
Natural monopolies in neoclassical economics are characterized by services with high fixed-costs and low additional marginal costs per customer once the expensive, fixed infrastructure is finished. Examples of alleged natural monopolies include electricity grids, telephone lines, gas pipelines, and roads. Given the high cost and inefficiency of having two competing roads that both go from A to B running parallel to one another, not enough of such competition will exist because roads are a natural monopoly, the argument goes. As a result, road owners can abuse their leverage as the owners of the only road from A to B to force consumers to pay high prices and offer low-quality roads, or even blockade individuals. There are several issues with this objection. First, we currently face not only supposed natural monopolies at the scale of individual roads, we face a legal monopoly on the highways from sea to sea, and municipal monopolies on all of the roads in entire cities. The state has immensely greater power to abuse than any private road owner would.
Returning now to private roads, the longer the distance one is traveling, the more possible routes there are to get to the destination. Even if Jones has no choice but to use road X to get to the local grocery store, because people traveling long distances do have a choice in whether they take road X as part of their longer trip or not, the owner of road X will face pressure to make road X more appealing in quality and price to long-distance travelers, benefiting local drivers as well.2
Even if Jones is forced to use road X when he drives to certain locations, he has flexibility in the upper bound of how often and to what extent he uses road X. If road X is high-quality and reasonably priced, Jones won’t just use it when he absolutely has to, but rather he will choose to go out more often and stay home less. When he does go out, he will be more willing to go to locations that require staying on road X for a greater distance, such as going to a far away movie theater rather than the nearby bowling alley, which is relevant if a road or highway charges by distance traveled. Thus, even when road X has no other roads to compete with, which it does indeed in the case of long-distance travelers, it competes against Jones’ phone, TV, computer, video game console, board games, books, etc.
Any road providers who make part or all of their income via billboards and other advertisements, vendor stands, stores, or pit stops on property on or adjacent to their roads have an incentive to maintain a smooth and constant flow of traffic to constantly draw new eyes and wallets, which would increase the amount they could charge for advertisement and vendor space.3
The question of an abusive proprietor of a road in a residential area would seldom even be raised, as networks of residential roads would be owned by the homeowner associations, covenant communities, or simply residents of the neighborhoods in which they are located, and have predetermined contracts guaranteeing road use to those buying homes in those neighborhoods. No one buys a house without also buying legal ownership of something as essential as the roof or driveway of the house. Likewise, in the future of more widespread privatized roads, road access rights will almost certainly be bundled into home purchases as much as the roofs or driveways of homes are now. As an example, a network of neighborhood streets with two hundred homes might be 1/200th owned by each homeowner, including a contract guaranteeing permanent road access to each homeowner.
Finally, with the matter of the roads immediately connected to people’s homes and in their neighborhoods solved, this provides breathing space (the longer the distance traveled, the more possible routes) such that this larger unit, the neighborhood, would likely possess multiple competing options for roads connecting it to the rest of the world from the north, south, east, and west.
Small is the gate and narrow the road that is centrally planned, but wide is the gate and broad is the road that is privately owned.
- 1. Robert P. Murphy, “A Gas Tax Hike is the Wrong Way to Fund Highways,” Mises Wire, 2018.
- 2. Price discrimination against local drivers could admittedly complicate this issue, but it would be costly to enforce and draw public contempt.
- 3. If road owners attempted to increase revenue the opposite way, by intentionally causing traffic jams to force drivers to view advertisements for longer periods of time, or purchase food from the road owners’ stores, this may work in the very short term until consumers learned of this tactic, and then ceased to patronize the road altogether. Only perpetual good service can secure perpetual profits.
Herbert Aptheker: Studies in Willful Blindness. By Anthony Flood. Independently published, 2019. I +93 pages.
Anthony Flood tells that in “the early 1970s, I was an acolyte of Herbert Aptheker(1915-2003). Known mainly for his writings on African-American history he was also, during the Cold War and even after, a theoretician of the Communist Party USA (CP).” (p.1) Flood became Aptheker’s research assistant and friend, but he eventually turned in disgust from his mentor, repulsed by Communist tyranny and atrocities.
Flood has documented a striking example of the way Aptheker’s rigid adherence to the Stalinist line corrupted his historical writing. Aptheker is best known as a historian for his American Negro Slave Revolts, his doctoral dissertation, published in 1943. In that book, he never cites the West Indian Marxist C.L.R. James’s Black Jacobins (1938), a study of the San Domingo Revolution of 1791 that overthrew the slave regime and established the Haitian Republic. Aptheker fully recognized the significance of the event; why then does he ignore James’s book? “What scholars virtually never even mention. . .is Aptheker’s life-long practice of rendering James invisible.”(p.15)
The answer, Flood suggests, is that James was a follower of Leon Trotsky. “Aptheker could not have missed the reviews it garnered in scholarly journals and the mainstream press. And yet in the few pages he devoted to that revolt in American Negro Slave Revolts, he neither cited Black Jacobins nor even listed it in his bibliography. For a card-carrying Stalinist like Aptheker, however, there was no lower form of life than a Trotskyist. “(p.80)
By no means did James ignore Aptheker. To the contrary, he attacked Aptheker for downplaying the role of blacks in abolitionist organizations. The Stalinists, James claimed, viewed blacks as subordinate shock troops of a prospective revolution rather than independent actors, and this Stalinist line Aptheker faithfully followed. True to his policy of treating James as an invisible man, Aptheker never responded to James’s criticism.
Flood discusses a number of other examples of the corrupting effects of Aptheker’s Communist bias, such as his tendentious The Truth about Hungary, approving the Soviet suppression of the Hungarian Revolution of 1956, and his claim in a newspaper article written in 1950 that the lack of revolts in North Korea showed that the Communist regime in power had popular approval.
Flood’s book is enlivened by stories of his conversations with Aptheker and Aptheker’s bitter enemy, the philosopher Sidney Hook, who was one of Flood’s professors. His careful account of the “invisible man” in Aptheker’s historiography is a valuable contribution.
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%.
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!
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.
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.
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.
Though I guess we should give Germans credit for doing a decent job on product quality under both strains of socialism.
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.
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.
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
Foundations of a Free Society: Reflections on Ayn Rand’s Political Philosophy. Gregory Salmieri and Robert Mayhew, Eds. University of Pittsburgh Press. Xi + 460 pages.1
This excellent book mirrors in its choice of contributors the odd relationship between Ayn Rand and libertarianism. On the one hand, her own proposals for the political organization of society are a version of minimal state libertarianism, and her novels and essays have had an enormous impact on many libertarians. On the other hand, she not only denied she was a libertarian but denounced libertarianism in characteristically fierce fashion. The anarchist position of Murray Rothbard especially aroused her opposition.
Many of the contributors to the book are members of the “official” Objectivist organization of philosophers, the Ayn Rand Society, but others, including Matt Zwolinski, Peter Boettke, and Michael Huemer, are not Objectivists. The “official” Objectivists are more inclined than was Rand herself to acknowledge the similarity between her political thought and libertarianism, but, like her, they criticize libertarianism and denounce Rothbard’s anarchism.
In what follows, I shall address the criticisms of Rothbard’s anarchism, as these are likely to be of most interest to readers of mises.org. Before turning to this, though, I should like to examine the more general criticism of libertarianism raised by the Objectivists, as this has considerable philosophical value.
Given the manifest similarity between Rand’s political proposals and minimal state libertarianism, why are Objectivists so critical of libertarianism? One is tempted to ask them, “All right, you don’t like anarchism, but why isn’t support for a minimal state that has no power to tax and for laissez-faire capitalism enough for you? What more do you want?” Their answer is that non-Objectivist libertarianism lacks proper philosophical foundations. In the absence of these foundations, libertarians are unable adequately to support their political conclusions.
As an example, Darryl Wright, a philosophy professor at Harvey Mudd College and a rising star among Objectivist philosophers, criticizes Rothbard for not grounding his non-aggression principle in normative ethics. Although Rothbard accepted an ethics of natural law, he also held that political philosophy was autonomous, and this was his fatal error: “The source of the difficulties with Rothbard’s conception of aggression. . .lies in a particular way of understanding self-ownership, which in turn proceeds from Rothbard’s commitment to what I will call the autonomy of political philosophy. By this I mean the view that political philosophy should be independent of normative ethics---that is, independent of any substantive ethical theory applicable to the whole of one’s life.” (p.107). More generally, Wright says, “Since Rand’s approach to philosophy is holistic, a proper understanding of the[non-initiation of force] principle requires us to see how it grows out of her more fundamental positions in ethics and epistemology. . .” (p.16)
Harry Binswanger, who along with Leonard Peikoff is the most senior philosopher of the Ayn Rand Society, in his response to Michael Huemer also stresses the need for foundations: “Rand repeatedly criticized the libertarians for treating the non-initiation of force principle as if it were an axiom, observing that is a quite derivative principle, requiring a complete philosophic base.” (p.273)
What are the proper ethical foundations? Here the Objectivists begin from an indisputable truth: Human beings need to use reason in order to survive. Animals survive through instinct, but for human beings, as Wright says, “functioning is not determined by our genetics. . .We must create the equivalent state [to that of animals] in ourselves---in our souls---a state that can underwrite the basic kinds of cognitive and existential actions that our lives require over their entire span.” (p.18) (When I say that this truth is indisputable, I do not mean to endorse the use that Objectivists make of it in ethical theory. That is far from indisputable.)
Human beings need reason to survive, but what is reason? Here Rand’s theory of concept formation comes to the fore. We abstract concepts through “measurement omission” from preconceptual perceptual states. From these concepts, further abstractions take place, and this process continues, creating a hierarchy of concepts. However high the hierarchy grows, it is grounded in first-level concepts abstracted from percepts.
I do not propose here to dispute this account of concepts, but two uses of the theory, much emphasized by Objectivists, do not follow from it. Suppose it is right that the mind acquires concepts in just the way that Rand suggests. It is a further step, and one that seems to me unsupported, to say that we ought to bring this process of hierarchical concept formation under our conscious control. That is to say, Objectivists hold that we ought to trace our concepts back to their perceptual foundation and that, at each stage in the hierarchy, we should be able to produce a clear definition of the concept abstracted at that stage.
Perhaps the process of abstraction operates better when it proceeds without conscious direction. What exactly is the argument that it does not? Are those who endeavor to bring concept formation under conscious control better able to survive than those who do not? That seems a matter open to investigation, and I am unaware of any studies that show this to be the case. To sharpen what is at issue, the question I raise is not whether those who are rational are more likely than the irrational to survive. Rather, it is whether rationality requires, or even suggests, that consciously tracing concepts to their grounding in perception is more rational than not doing so. To anticipate an objection, in speaking of the need for investigation I am not assuming the truth of the analytic-synthetic dichotomy, brought into question in a famous essay by Leonard Peikoff. I do not claim that all truths not in a narrow sense “analytic” are contingent; rather, I question whether a particular claim about reason is true, let alone necessarily true. Objectivists have moved uncritically from the obviously true claim that we need reason to survive to the unsupported claim that using our reason in a particular way aids our survival.
There is another claim made by Objectivists that seems to me dubious. They stress a proper hierarchy of knowledge, in which one begins with a theory of concepts, used to ground ethics, which in turn grounds political philosophy. The theory of concepts on this view is at the most fundamental level. It does not follow from this that the hierarchy may be without argument transmuted into a theory of historical causation, according to which beneficial or harmful political doctrines stem ultimately from the theory of concepts held by their advocates. This theory of causation is basic to the account of Nazism in Dr. Peikoff’s well-known book The Ominous Parallels a book that in my opinion does not succeed in making its case. 2
Before getting to the criticisms of Rothbard’s anarchism, I should like to make one further point about Rand’s philosophy. Objectivists contend that the concept of value stems from life. Not only is the Objectivist account of value better than rival theories of value, it is the sole basis for the concept of value. As Dr. Binswanger states, “The essential point is this: only life makes possible an objective, nonarbitrary distinction between value and disvalue, or good and bad. . .It is the conditionality of life upon action that creates good-for and bad –for.”(p.265, emphasis in original)
That is a possible story about how the concept of value is acquired, but I cannot see why it is more than that. (Again, in raising this objection, I take as given that we need to use reason in order to survive and I do not challenge Rand’s account of concept acquisition.) What precludes defenders of other theories of value from suggesting their own theories of how the concept of value---of course using another definition of value from that of the Objectivists—is acquired? Life is conditional on action, but how exactly does this generate an account of how the concept of value must be acquired? Why is this particular conception of value the concept of value?
Let us now turn to the criticisms of Rothbard’s anarchism. To a large extent, these criticisms rest on a misapprehension of Rothbard’s position. For example, Dr. Binswanger assumes that on an anarcho-capitalist view, people are free to exercise force at their discretion. He contrasts this with Rand’s position, in which the use of force is based on objectively true standards. “The attempt to invoke individual rights to justify ‘competing’ with the government collapses at the first attempt to concretize what it would mean in reality. Picture a band of strangers marching down Main Street, submachine guns at the ready. When confronted by the police, the leader of the band announces: 'Me and the boys are only here to see that justice is done, so you have no right to interfere with us.’ According to the ‘libertarian anarchists,’ in such confrontation the police are morally bound to withdraw, on pains of betraying the rights of self-defense and free trade.” (p.229)
Against this, Dr. Binswanger says: “In fact, of course, there is no conflict between individual rights and outlawing private force: there is no right to the arbitrary use of force. No political or moral principle could require the police to stand by helplessly while others use force arbitrarily—that is, according to whatever private notions of justice they happen to hold.” (p.229)
This objection has no relevance to Rothbard’s position. He too believed in an objective law code, largely based on the tradition of common law, not on agencies with conflicting views deferring to one another or “fighting it out.” In a review of Bruno Leoni’s Freedom and the Law, he says: “In short, there exists another alternative for law in society, an alternative not only to administrative decree or statutory legislation, but even to judge-made law. That alternative is the libertarian law, based on the criterion that violence may only be used against those who initiate violence, and based therefore on the inviolability of the person and property of every individual from "invasion" by violence. In practice, this means taking the largely libertarian common law, and correcting it by the use of man's reason, before enshrining it as a permanently fixed libertarian code or constitution. And it means the continual interpretation and application of this libertarian law code by experts and judges in privately competitive courts.” law without legislation.
Another objection to anarcho-capitalism also fails. Dr. Binswanger advances a startling claim: “Ultimately, anarchists who oppose monopoly government have to end up as pacifists. This is because all force is monopolistic. . .There is no such thing as force that lets dissenters go their own way. Force does not tolerate ‘to each his own.’ Force is precisely the attempt to subjugate another’s will to one’s own. If force in self-defense is justified, this means that monopolizing an interaction is justified. If I use force to defend myself against an aggressor I am not trying to persuade him---I am attempting to stop him from acting as he chooses. If the government monopolization of force were wrong, so would be the private use of force by individuals. The argument against government’s monopoly on force is thus an argument against self-defense, and it leads to pacifism.” (p.278)
This objection baffles me, because it has nothing to do with the dispute between Rothbard and supporters of Rand’s minimal state. Whether using force against an aggressor is inconsistent with persuasion may well be a significant topic, but the question at issue is whether objective law requires a state. Even if Dr. Binswanger is right about persuasion and the aggressor, so what?
All of the essays in this collection merit careful study. I especially admire Lester Hunt’s outstanding analysis of rights as side constraints in “Ayn Rand and Robert Nozick on Rights”
Ayn Rand was an important thinker, but she was not always right.
- 1. I am grateful to Mr. Neil Parille for sending me a copy of this book and asking me to review it.
- 2. I hope I may be allowed a personal note. My review of the book, written for Inquiry so long ago as 1982, has been the second most criticized of all my reviews. My most criticized review was of a book written by an admirer of a well-known painting by Frans Hals.
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."
Auto loan delinquencies surged in 2018, rising to 2.36 percent, which was the highest rate since the third quarter of 2010.
More Americans than ever are at least three months behind on their auto loans, a sign that the U.S. economy may have little growth left in the tank.
The number of loans at least 90 days late exceeded 7 million at the end of last year, the highest total in the two decades the Federal Reserve Bank of New York has kept track. Expressed as a percentage of total debt, the delinquency rate is the highest since 2012, as overall borrowing has also increased.
Source: Federal Reserve Bank of New York, Household Debt and Credit Report.
This isn't to say that automobiles are going away as an industry. In spite of repeated claims that people aren't buying cars anymore — and that millennials would rather walk everywhere — overall spending on auto sales reached new highs in 2017 and 2018.
[RELATED: "How Long Will Cheap Debt Bail Out Automakers?" by Ryan McMaken]
On the other hand, per capita spending on auto has still not recovered from the high of the year 2000. This, however, does not prove that people are getting rid of their cars. It may only mean that they are economizing on cars.
For example, the American Community Survey's data through 2017 suggests very little change in recent years, as far as vehicles per households. According to the survey, the number of households with one vehicle has been virtually unchanged since 1990 around 33 percent. Since 2000, the number of households with two vehicles has only slightly ticked downward from 38 percent in 2000 to 37 percent in 2017.
Source: Transportation Energy Data Book, Table 8.4, Oak Ridge National Laboratory. 2010-2016 data – U.S. Bureau of the Census, American Community Survey, Table CP04, 2018.
Meanwhile, since 2000, the number of households with three or more cars has increased from 18 percent to 21 percent. (Household size has decreased over the same period.)
In other words, we don't see anything here to suggests that American households are scaling back the number of vehicles per household, even if they do cut back on how much they are spending.
After all, not everyone concludes he absolutely needs an $80,000 pickup truck.
It remains unclear if the Great Recession or the allegedly different attitudes of the Millennials has fundamentally changed auto availability per household.
The short term effects of the Recession are clear. Looking at the average number of vehicles per person or per household, we do indeed see a drop off in the number of light vehicles in the period following the recession. Looking at a broader timeline for the past twenty-five years, however, the trend remains remarkably flat.
As far as Millennial demand goes, CNBC reported in 2017 that "Consumers, ages 21 through 34, are taking out new auto loans at a 21 percent higher rate than Gen X borrowers did when they were that age." And in 2016, the Associated Press pointed out "millennials — especially the oldest ones — are these days buying cars in big numbers. They just had a late start." The article also noted that in California, the country’s biggest car market, millennials outpaced boomers for the first time as car buyers. Millennials’ share of the new-car market jumped to 28% in 2015.
Moreover, as USAToday reported last week, low interests rates have continued to feed demand for ever-pricier cars:
A decade ago, the best-selling segment of vehicles was affordable small cars, like the Ford Focus sedan, she said. Today, it’s entry-level crossovers like the Toyota RAV4 and Ford Escape, which carry starting prices of several thousand more dollars.
“Fundamentally consumers have changed what they’re buying,” Zabritski said. “That’s part of where we’re seeing these rising prices.”
They’ve changed so much that the Focus, in fact, is gone. Ford is discontinuing the car, along with the Fusion and Fiesta sedans. And General Motors is killing the Chevrolet Cruze, a Focus competitor, along with several other car models.
Given all of this, these may be the takeaways about auto ownership right now:
1. Americans appear to still like their cars. The vehicles-per-household data from the Census Bureau shows little change at all since 2000, and overall averages suggest a flat trend over the past twenty-five years.
2. The American standard of living — in terms of household access to vehicles — does not appear to have changed significantly since the year 2000. During the 1980s, and to a lesser extent the 1990s, we did continue to see declines in the households with no vehicles, and increases in the number of households with three or more vehicles. After the 1990s, we see little change.
3. Millennials aren't necessarily abandoning the idea of auto ownership. There have been many claims that this is the case. But many have also claimed that Millennials mostly want to move to central urban areas. In both cases, the data has been inconclusive. It appears many Millennials do indeed wish to move out of the city — and many will need to own cars to carry on life in a suburban or exurban environment.
4. Nevertheless, when the economy softens, it's difficult to see how the current preferences for larger, more expensive cars can be sustained. We're likely to see a period of auto repossessions and a return in demand for lower-priced economy cars. Those who can pay cash for cars will benefit, while those who overextended themselves to buy pricier cars with big loans will suffer the most.
Every year Grove City College hosts the Austrian Students Scholars Conference, bringing together students to present their own research papers written in the tradition of the Austrian school.
Mises Institute Fellow Per Bylund delivered a keynote speech this year titled "What Entrepreneurship Means for Economics."