Power & Market
According to new data from the US Bureau of Economic Analysis, the personal saving rate in the US in September 2019 was 8.3 percent. That puts it near a six-year high, and comparable to the saving rate we saw during the early 1990s.
Indeed, the personal saving rate has been heading upward steadily for the past eighteen months. And that's a bit of an unusual thing. For at least the past fifty years, the saving rate has tended to increase when the economy is doing poorly, and decrease when the economy is doing well.
We saw this in the last 1970 and early eighties during the age of stagflation and the 1982 recession. We certainly saw it in the wake of the 2008 financial crisis, when the saving rate quickly rose from a near-low of 3.8 percent in August 2008, more than doubling to 8.2 percent during may of 2009.
But if the BEA's numbers are correct, that pattern appears to be over, and Americans appear to be more willing to save even when job growth continues to head upward.
This change could be a result of several factors. It could be Americans are less confident about their prospects for future earnings, even if the current job situation appears bright. Many could be less confident that the assets they do have will provide a cushion in case of crisis. For example, many Americans may have learned their lesson about the myth that "housing prices always go up."
The fact that these numbers are averages makes it especially hard to guess. After all, surveys suggests a very large numbers of Americans are saving very little.
For example, CNBC reported in January that "Just 40 percent of Americans are able to cover an unexpected $1,000 expense, such as an emergency room visit or car repair, with their savings..."
A separate survey "found that 58 percent of respondents had less than $1,000 saved."
Regardless of who is doing it, however, increased saving can be a good thing for the economy overall. For instance, even if only the rich are the ones saving more, their saving increases the amount of loanable funds, decreasing the interest rate, and making lenders more likely to lend to riskier borrowers. That's good for farmers and small business owners.
Moreover, as the wealthy refrain from spending, they increase the value of cash held and spent by people at all income levels. For example, if the rich are spending less on restaurant meals and pickup trucks, this means the prices for those items are not being bid up as much. When the rich save, that means fewer dollars chasing goods and services, which can lead to more stable, or even falling prices. That can be good for many people at lower income levels.
Nonetheless, many mainstream economists continue to get hung up on the idea that saving "too much" hampers economic growth. For example, in a recent article at the Wall Street Journal titled "Americans Are Saving More, and That Isn’t Necessarily Good" Paul Kiernan writes:
if saving outstrips investment opportunities for a long time, some economists say, it can hold down interest rates, inflation and economic growth. Such “secular stagnation” may leave less room to cut interest rates, making it harder for the Federal Reserve to boost growth during downturns.
“Rather than being a virtue, saving becomes a vice,” said Gauti Eggertsson, an economist at Brown University.
This is an old story we've been hearing for years, and the idea that there is too much saving certainly received its share of promotion during the 2001-2002 recession, and during the 2007-2009 recession.
Economists do recognize that more saving helps increase loanable funds — and thus puts downward pressure on interests rates — and reduces inflation. But more saving does not, as they think, reduce real economic growth.
True, it might reduce economic growth as measured by government stats which mostly just add up money transactions. But properly understood, economic growth increases with saving, because the capital stock is increasing, making it easier for entrepreneurs to deliver new goods and services — and more goods and services — to consumers. As Frank Shostak explains, we need more saving to create more and better goods:
What limits the production growth of goods and services is the introduction of better tools and machinery (i.e., capital goods), which raises worker productivity. Tools and machinery are not readily available; they must be made. In order to make them, people must allocate consumer goods and services that will sustain those individuals engaged in the production of tools and machinery.
This allocation of consumer goods and services is what savings is all about. Note that savings become possible once some individuals have agreed to transfer some of their present goods to individuals that are engaged in the production of tools and machinery. Obviously, they do not transfer these goods for free, but in return for a greater quantity of goods in the future. According to Mises, "Production of goods ready for consumption requires the use of capital goods, that is, of tools and of half-finished material. Capital comes into existence by saving, i.e., temporary abstention from consumption."
The common view among many economists today, however, is that it's better for economic growth to make sure more people spend every last dime on trinkets at the discount store. Those who have been around long enough to remember previous business cycles will remember that this idea manifests itself during times of recession as pundits insist it's our patriotic duty to spend more, in order to create economic growth.
In truth, in a time like today, the best thing people can do is save more. We live in a time of multiple economic bubbles and non-productive sectors of the economy fueled by inflationary monetary policy. When recession finally does come, vast amounts of debt will never get paid back and immense numbers of "assets" held on balance sheets will evaporate. The result will be a lot of lost jobs and a lot of failed businesses. The only real cushion will be real savings which will be badly needed in a time of recession.
Not that QE ever really went away, but the European Central Bank is taking it up a notch with today's rate cut. According to the Wall Street Journal today :
The European Central Bank cut its key interest rate and launched a sweeping package of bond purchases Thursday that lays the ground work for a long period of ultraloose monetary policy, jolting European financial markets and triggering an immediate response from President Trump.
The ECB’s pre-emptive move was aimed at insulating the eurozone’s wobbling economy from a global slowdown and trade tensions. It is the ECB’s largest dose of monetary stimulus in 3½ years and a bold finale for departing President Mario Draghi, who looks to be committing his successor to negative interest rates and an open-ended bond-buying program, possibly for years.
But the move triggered opposition from a handful of ECB officials, according to people familiar with the matter, while leaving key practical questions unanswered. Primarily: How long can the ECB keep purchasing bonds without significantly enlarging the pool of assets it can buy? Some analysts estimated it might be less than a year.
Meanwhile, the president attempted to use the move to put additional pressure on the Fed to ratchet up its own QE plans, writing: "European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!"
European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!— Donald J. Trump (@realDonaldTrump) September 12, 2019
Trump, apparently is unconcerned by the effects of negative rates on the banking sector or on family budgets.
For example, the European banking sector has been hit hard by negative rates, as shown by Maurus Adam recently at mises.org:
Low interest rates make credit for private banks — and in turn, for consumers — cheaper. But at the same time, the low return on government bonds makes investment in these long-term options unattractive. Inflation and low return on investment options discourage people from saving and investing capital but encourage spending. Moreover, the low interest rates result in a low return for banks on the credit they grant to consumers. High consumption, low investment, and low profit on all banking activities strongly affects the ability of European banks to compete. Consequently, Markets Insider reports :The extremely low interest rates in the Eurozone hit the bank’s investment branch hard...
The bank has struggled financially amid rock-bottom interest rates in Europe and fierce competition in the German banking industry, limiting its ability to invest and expand in line with US rivals.
And, as reported by Matt Egan at CNN:
Deutsche Bank's struggles have also been amplified by something the 149-year-old lender never imagined, mostly because it had never happened before in modern history: negative interest rates. In 2014, the European Central Bank wanted to boost the sluggish economy but interest rates were already at zero. The unconventional decision to take them into negative territory was aimed at encouraging growth and avoiding deflation, but it meant banks were charged a fee for parking their reserves with the central bank. The ECB's extreme policies may have injected some life into Europe's sleepy economy, in turn giving Deutsche Bank and other lenders a boost. However, negative rates are also crushing the profitability of all banks, Deutsche Bank included. And this unorthodox policy — one that the ECB is on the verge of doubling down on — is making it awfully difficult to revive the champion of Germany's banking system. But rates don't have to be negative to have a negative impact on savers and pensioners. In order to see any meaningful gains from saving in an economy with ultra-low rates, an investor must engage in yield chasing. but that;s much more difficult for ordinary households who don't have the tools of wealthy investors at their disposal - tools that allow for a variety of risky investments that may bring sizable returns. Ordinary people, in contrast, can't gamble their savings in that way, and can't even access hedge funds and other tools designed to seek out returns in an environment with so few opportunities for yield.
Moreover, pension funds that rely on more safe and traditional investments must pursue riskier investments, or do without the sorts of gains they need. That means future retirees will face far fewer returns and a falling standard of living.
None of this concerns the president, apparently, as he now appears to be champing at the bit to get his over version of European style QE.
Just yesterday, he was demanding the Fed cut the federal funds target rate "down to ZERO, or less":
The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet.....— Donald J. Trump (@realDonaldTrump) September 11, 2019
That is, the president apparently believes savers should have to pay to save money, as is potentially the case under a negative-rate regime.
The president might also want to consider the fact that even after a decade of extreme easy-money policies, the European economy is still weak, and the euro zone's growth has slowed to under one percent.
This won't surprise hawks who understand that easy money is not exactly a miracle formula for economic growth. But this fact is seemingly irrelevant to the president who sees monetary policy as little more than a tool to spur exports.
Although the Fed is now expected to cut its own target rate later this month, one can only hope that it keeps to only 25 basis points.
After all, the good news here is that, with a target rate of 2.25 percent, the US's central bank looks relatively sane compared to the ECB and the Bank of Japan, both of which are employing negative rates. The Fed is even clocking in at well above the Bank of England's target rate of 0.75 percent.
So long as the Fed does not significantly increase its own balance sheet and other QE efforts in response to the ECB and other central banks, the dollar will continue to look relatively attractive compared to other currencies. Predictions that the dollar will quickly devalue in relation to other currencies are likely overstated. It is true that larger geopolitical trends, such as de-dollarization efforts among some major world economies , are a threat. But these efforts lie outside run-of-the-mill monetary policy right now which continues to point to a relatively sound dollar.
A summary of the most recently set rates:
- USA: 2.25%
- Canada: 1.75%
- UK: 0.75%
- Australia: 1.0%
- ECB: -0.5%
- Japan: -0.1%
Note: All graphs by Ryan McMaken. Here are the specific key rates discussed here, with links:
The Federal Reserve, responding to concerns about the economy and the stock market, and perhaps to criticisms by President Trump, recently changed course on interest rates by cutting its “benchmark” rate from 2.25 percent to two percent. President Trump responded to the cut in already historically-low rates by attacking the Fed for not committing to future rate cuts.
The Fed’s action is an example of a popular definition of insanity: doing the same action over and over again and expecting different results. After the 2008 market meltdown, the Fed launched an unprecedented policy of near-zero interest rates and “quantitative easing.” Both failed to produce real economic growth. The latest rate cut is unlikely to increase growth or avert a major economic crisis.
It is not a coincidence that the Fed’s rate cut came along with Congress passing a two-year budget deal that increases our already 22 trillion dollars national debt and suspends the debt ceiling. The increase in government debt increases the pressure on the Fed to keep interest rates artificially low so the federal government’s interest payments do not increase to unsustainable levels.
President Trump’s tax and regulatory policies have had some positive effects on economic growth and job creation. However, these gains are going to be short-lived because they cannot offset the damage caused by the explosion in deficit spending and the Federal Reserve’s resulting monetization of the debt. President Trump has also endangered the global economy by imposing tariffs on imports from the US’s largest trading partners including China. This has resulted in a trade war that is hurting export-driven industries such as agriculture. President Trump recently imposed more tariffs on Chinese imports, and China responded to the tariffs by devaluing its currency. The devaluation lowers the price consumers pay for Chinese goods, partly offsetting the effect of the tariffs. The US government responded by labeling China a currency manipulator, a charge dripping with hypocrisy since, thanks to the dollar’s world reserve currency status, the US is history’s greatest currency manipulator. Another irony is that China’s action mirrors President Trump’s continuous calls for the Federal Reserve to lower interest rates.
While no one can predict when or how the next economic crisis will occur, we do know the crisis is coming unless, as seems unlikely, the Fed stops distorting the economy by manipulating interest rates (which are the price of money), Congress cuts spending and debt, and President Trump declares a ceasefire in the trade war.
The Federal Reserve’s rate cut failed to stop a drastic fall in the stock market. This is actually good news as it shows that even Wall Street is losing faith in the Federal Reserve’s ability to manage the unmanageable — a monetary system based solely on fiat currency. The erosion of trust in and respect for the Fed is also shown by the interest in cryptocurrency and the momentum behind two initiatives spearheaded by my Campaign for Liberty — passing the Audit the Fed bill and passing state laws re-legalizing gold and silver as legal tender. There is no doubt we are witnessing the last days of not just the Federal Reserve but the entire welfare-warfare system. Those who know the truth must do all they can to ensure that the crisis results in a return to a constitutional republic, true free markets, sound money, and a foreign policy of peace and free trade.
Economists don't appear very interested in economics nowadays.
Indeed, they mostly seem interested in muscling in on other disciplines.
Consider, for example, this profile on Harvard economist Raj Chetty published in May by Vox. The article acts as is Chetty has done something revolutionary in the social sciences by processing large amounts of data to examine human behavior.
For example, the Vox author breathlessly notes that in Chetty's class:
There’s little discussion of supply and demand curves, of producer or consumer surplus, or other elementary concepts introduced in classes like Ec 10. There is no textbook, only a set of empirical papers.
He [Chetty] used huge amounts of IRS tax data to map inequality of opportunity in the US down to the neighborhood, and to show that black boys in particular enjoy less upward mobility than white boys.
But here's the thing: people have been doing this sort of thing for years. They're called sociologists.
Similarly, we're supposed to be impressed that the new "empirical economists" are using data to examine the psychological roots of human behavior. They call it "behavioral economics," but they haven't developed anything new. They're just doing the work of psychologists, and then calling it "economics."
And then there's the field called "developmental economics." which is just trying to recreate the work that's been done for years by political scientists.
I should note that I don't so much have a problem with overlap in these disciplines. In fact, that's a good thing. What is silly is that every time the economists decided to start doing sociology or psychology, they then tell themselves (and others) that they're doing something "revolutionary."
That, of course, is the whole tone of the Vox piece. Isn't it amazing that people are examining data to look at income!"
No, it's really not.
In fact, some of the most heated debates over household income occur among sociologists, not economists.
Take for example, the debate over Juliet Schor's book The Overworked American: The Unexpected Decline of Leisure from 1992. For years, scholars debated whether or not she was right, and whether or not people really are working more than they used to. (She was probably wrong.)
Nonetheless, we can see that the debate over work was largely driven by sociologists in recent decades.
Similarly, for data on trends in family size and living arrangement — something with huge implications for standards of living — we find much of the work being done by Steven Ruggles, a history professor and scholar of "population studies."
And then, of course, there are the criminologists. This topic has important implications for economics, given the supposed connection between crime and income, and the effects crime has on one's standard of living. But the empirical work in this area is rarely done by economists. It's done by political scientists and historians.
This isn't to say that economists are never involved in this sort of thing. Claudia Goldin, for example, has looked at issues surrounding family incomes for decades.
But economic history is all these alleged new "empirical economists" are doing. Looking at the upward mobility of black boys, as Chetty is doing, is just economic history. There's nothing wrong with doing economic history. It's a perfectly legit field. But doing that sort of work doesn't make Chetty special. (And the sheer size of the data-sets doesn't make him special either. All these social science fields have been moving more and more in the direction of large-scale data mining.)
But there's also nothing new about it, and nothing that warrants a gushing piece about the new page economics is supposedly turning by doing what sociologists have already been doing for decades.
In fact, the more economists go all-in on trying to copy the work done by other fields, the more they ignore what's actually important about economics, which is theoretical economics devoted to understanding core issues like business cycles, entrepreneurship, and value. By ignoring these issues, economists only make themselves more irrelevant. Were economists to devote themselves to better understanding and spreading good economic theory, they'd be in a position to interpret and and analyze the empirical work done by others. After all, empirical work is only as good as the theory used to understand it.
But it doesn't look like economists are much interested in that sort of thing. They just want to hop on the empirical bandwagon. Meanwhile, economists seem to think they discovered all this sort of thing the day before yesterday. This is just the sort of obliviousness we should expect from academic departments, and it helps demonstrate much of what's increasingly wrong with economists in the first place.
Of all the natural and social sciences, economics1 is the most crucial for the intelligent laity. This is because economic understanding among the public makes the difference between barbarism and a healthy society. While the other sciences are important, they only require a small minority of specialists with a deep understanding of those topics for the fruits of those disciplines to spread throughout society. But good public policy frequently depends on a sound understanding of economics, and thus depends on the public's understanding of it.
When passengers are sitting in coach, flying from the Bahamas to New York, it doesn’t matter whether any of them understand the laws of aerodynamics, or anything about the mechanical engineering of the plane they’re flying in. The successful operation of the plane goes on, so long as a small, specialized group of people understand. When millions of people take their medicine every night, it doesn’t matter whether they understand the chemistry underlying their pills and syrups, so long as a relatively small number of chemists who produced the medicine knew what they were doing. A cruise ship does not get lost at sea on the way to, say, Alaska, based upon the sailing expertise of those playing laser tag on its deck, if the captain and his crew know what they’re doing. A country, on the other hand, is a boat that only floats if those inside it understand how to operate it successfully.
Even a Non-Voting Majority Affects Policy
Accepting the key role of the economic system on a society’s wellbeing, it’s straightforward why representative republics or other forms of democratic government with populations that favor free markets have free markets, and those with populations that favor interventionism have interventionism. Politicians seek election, and if voters en masse really demand certain policies, politicians will pursue those policies. But why should non-democratic states care at all what their populations think? Doesn’t the dictatorship have all of the guns? Can’t they let the people pointlessly pass around their issues of The Austrian while the overlords continue about their business, undisturbed behind their battalions? As Mises stated in Human Action:
In the end the philosophy of the majority prevails. In the long run there cannot be any such thing as an unpopular system of government. The difference between democracy and despotism does not affect the final outcome. It refers only to the method by which the adjustment of the system of government to the ideology held by public opinion is brought about. Unpopular autocrats can only be dethroned by revolutionary upheavals, while unpopular democratic rulers are peacefully ousted in the next election.2
Emphasizing the strength of public opinion in the face of the state’s military might, Dr. Robert Murphy explains:
And if you think that’s naïve, well then if you were right, that means the most totalitarian states where the leader can just have somebody disappeared at night . . . then there they should have free and open internet access, they can let the schools teach whatever they want . . . if anyone gets out of line they just kill them. But no, it’s precisely in those totalitarian societies where they can just kill people at will where they want the most strict control over information.3
Indeed, in virtually every case, the most militarized and totalitarians states, those most willing to use force against their own people, are those most concerned with controlling the education, speech, and thought of their subjects. The reasoning behind such efforts is clear in light of two facts. First, the people are many and the state is few. Second, the constituent agents of the state itself, including members of the police and military, are not immune to infection by dissent, and can come to support regime change. Inverted pyramids of force are built upon the base of opinion. Even if, as Lenin said, one man with a gun can control one hundred without one, opinion can make that one man turn around onto his masters.
In some significant ways, dictatorships and monarchies face even stronger popular opinion constraints than democracies do. While elected officials are typically voted out of office in one piece, strongmen and their loved ones often face grotesque deaths when ousted. Additionally, the understanding among the public that democratic politicians can be voted out peacefully every few years can breed patience until the next election, whereas subjects of strongmen know change won’t come unless and until people take action. Thus, dictators have more personally at stake in the battle over popular opinion than do democratic politicians, and do not have the hope of periodic peaceful regime change to allay unrest among the masses.
Of all of the natural and social sciences, it’s most important that the intelligent layperson have a solid hold of economics, because their understanding of economics will shape the operation of the most powerful organization in every country in the world: the state. “The flowering of human society depends on two factors: the intellectual power of outstanding men to conceive sound social and economic theories, and the ability of these or other men to make these ideologies palatable to the majority.”4
Consider what wealth is: it is to have the means to satisfy wants. Those means can be anything, including berries or fruits growing in the wild. But the vast majority of means are created. There are no hamburgers, iPhones, or houses growing on trees.
In other words, most means to satisfy wants were created. So wealth, generally speaking, is created.
Many appear confused by this rather obvious fact, or take offense by it being stated.
That is not only ignorant, but counter-productive: whoever does not believe that the means to satisfy wants (wealth) are created surely is not acting to create them. So we are missing out on a lot of wealth because of this ignorant view; our standard of living could be higher.
It should also be obvious that the creation of one means does not makes anyone poorer or, as some claim, that the creation of any means to satisfy a want "creates poverty."
Imagine two people living without any created means to satisfy wants: they are naked and without any wealth other than the occasional berry or fruit provided by nature. If Person One spends her day creating a shelter, this provides a means to satisfy a want. She is thus richer. Does that make Person Two poorer? No. That person's situation has not changed. If anything, there is now a shelter that could potentially be shared, and the knowledge of how to create one is now available. So if anything, Person Two is (slightly) richer too.
Sure, there is now inequality because person one has a shelter and person two does not. You may have the opinion that Person One must share this wealth or think it is okay for Person Two to use force to take that shelter away from Person One. But neither changes the fact that this wealth – the shelter – was created and that, as a result, there is now more wealth in the world.
More wealth means less poverty.
The distribution of wealth is an important issue that needs to be properly discussed, but it is separate from the fact that wealth is created. And it must be created before it can be "distributed." Anything else is nonsense.
Sure, critics may claim shelters are different from the things people want today. That, for example, iPhones etc. do not satisfy "real" wants. But that's also an issue that is separate from the creation of wealth, and it is not really for them to make such judgments. The only thing that matters is that people who use – and choose to use – those means do so because their use satisfy some want that they have. It thus creates value in their lives. Your opinion does change this fact; it does not decide the wealth or standard of living of someone else.
It's actually beautiful that we do want different things and have different skills, which means we can cooperate through specializing and exchanging and help everyone satisfy more wants than we would be able to on our own. So we're richer as a result (perhaps despite your opinion of people's choices).
Formatted from Twitter: @PerBylund.
- 1. Link added by the editor.
Dirty Jobs’ Mike Rowe does not pull punches when it comes to tearing down conventional wisdom in professional advancement.
Rowe has had choice words for the university system and how it has kept Americans ill-prepared for the real world. One of the greatest insights that Rowe has shared with many Americans disillusioned with their professional prospects is to look the other way in the blue-collar sector for lucrative opportunities.
On Tucker Carlson’s nightly show, Mike Rowe continued his attacks on higher education in America. Rowe claimed that Americans and legacy institutions are “obsessed with credentialing, not education.”
Rowe continued, “I think because stuck in this binary box, this or that. Right, blue-collar or white color, good job or a bad job. Higher education or higher alternative education.”
The TV show host then said:
“The cost of college today has almost nothing to do with the cost of an education, and everything to do with the cost of buying a credential. That’s all a diploma is. Some are more expensive than others, but none of them reflect the character of the recipient, none are necessary to live a happy and prosperous life, and none of them come with any guarantees.”
Rowe gets the surface details correct, however, there is more to the story than meets the eye. Ever since the federal government got involved in education, not only has the quality become suspect, but the cost of education has skyrocketed.
A study from the National Bureau of Education Research (NBER) found that the average net tuition increased by 106 percent from 1987 to 2010. We can thank government subsidized loans for that.
These guaranteed subsidies artificially drive up demand, and in turn, universities take advantage of this by raising tuition rates . On top of that, rigorous accreditation standards shield established universities from competition. Gary North explains how the American university has evolved during the past century:
Accreditation was initially private. Private regional accrediting associations were set up. Today, there are state laws governing the use of the word 'university.' A university must be accredited.
In effect, these legal barriers to entry restrict the supply of academic institutions providing educational services, thus keeping prices high.
With how democratized information has become due to technology like the Internet, it no longer matters what educational institution you go to. Now, people from all over the world can learn information that was only available to rich elites. In theory, the playing field should already be leveled. Unfortunately, the government has not caught up with this trend and impedes the market from doing its thing.
The U.S. political economy, from its tax code to an out-of-control bureaucracy, has in many ways created a quasi-rigged environment against new entrants. Further, the education system helps perpetuate this vicious cycle of control. From the primary level up until the university level, students are treated as if they are cogs in a machine. Go to class, get lectured, memorize material. Rinse, lather, and repeat.
Once students enter the real world, they are up to their necks in debt and ill-prepared to be a part of the workforce. It’s even sadder when young individuals, disillusioned with their dreary corporate jobs, end up gravitating toward government solutions to these problems. The same government that constricts our job prospects, has also constricted our mindsets when it comes to working. Indeed, we can aspire for more.
It’s time to recognize that not everyone needs a traditional degree to have a successful career. Some people’s calling belongs in trades, not an office cubicle. Our society’s blind acceptance of the university to the corporate pipeline has stunted the professional imagination of countless individuals.
Rowe’s insights on higher education are a breath of fresh air. The next step is for Rowe and others to embrace free markets as the solution to the higher education conundrum.
Rowe might not have the correct specifics but he’s at least starting a conversation that must take place if we want to overhaul our education system. We can start by treating education like a good or service, not some positive right that has to be provided or stimulated by the most primitive institution to rule them all—the State.
There are 326 Native American reservations across the country with a total of approximately 1,150,000 residents, and another four million Native Americans living outside of these reservations.1 The Navajo Nation reservation is the largest and covers 27,413 square miles, the size of the Netherlands and Belgium combined. The Uintah and Ouray Reservation is the second largest and is 6,825 square miles large, almost seven times the size of Luxembourg.2 Third largest is the Tohono O’odham Nation Reservation covering 4,453 square miles, which is thirty-six Maltas and one Lichtenstein in change.
These reservations are considered “domestic dependent nations,” and are under the trust of the Department of the Interior. Native American tribes cannot freely access the massive natural resource reserves under their own land, or develop the land itself, without permission from the Department of the Interior, and so the federal government has locked them into a state of perpetual bureaucratic repression:
On Indian lands, companies must go through four federal agencies and forty-nine regulatory or administrative steps to acquire a permit to drill, compared with only four steps when drilling off reservation. . . . It is not uncommon for several years to pass before the necessary approvals are acquired to begin energy development on Indian lands—a process that takes only a few months on private lands. At any time during the energy development process, a federal agency may demand more information or shut down development activity. Development projects on Indians lands are subject to significantly more constraints than similar projects on private lands. Simply completing title search requests results in delays from the BIA. Indians have waited six years to receive title search reports that other Americans can get in a few days.3
The results are grim and contribute to a variety of larger social problems. For example, native American life expectancy is 5.5 years lower than the U.S. average and a Native American poverty rate of 28.3 percent compared with the national average of 15.5 percent for 2014.4 5 On reservations, the situation is particularly dismaying:
The impact of insecure property rights can be seen on almost any reservation. Some families of the Pine Ridge Indian Reservation in South Dakota, for example, are still living with no electricity, telephone, running water, or sewer. On this reservation, the eighth largest, unemployment hovers around 80 percent and 49 percent live below the federal poverty level. The life expectancies are in the high 40s for males and the low 50s for females.6
Given the bureaucratic hurdles through which tribes must jump through repeatedly, part of the solution may lie in granting true sovereignty to reservations and their residents. This movement toward decentralization of federal power could have immense benefits not only for the reservations themselves, but also for life in the rest of the U.S.
A Collection of Independent States
Potentially, these 326 federally beholden reservations could become 326 states as sovereign as Switzerland and Andorra, and federal control over natural resources in America — solidified and extended by the reservation system — would be reined in.
After all, as noted by Maura Grogan, Rebecca Morse, and April Youpee-Roll,“It appears fair to say, based on a number of reports, that Indian lands contain about 30 percent of the coal found west of the Mississippi, up to 50 percent of potential uranium reserves, and as much as 20 percent of known natural gas and oil reserves.”7 Moreover, as the example of Luxembourg teaches, tiny, landlocked nations are not necessarily limited by their geography. Resource managements is a key factor. While some may argue the tribes would not manage their resources well, it hardly follows that the US federal government is a more trustworthy custodian. Given that residents of the reservations themselves stand to benefit — or suffer — the most from mismanagement, handing over control to bureaucrats in Washington, DC is hardly the most reasonable option.
Moreover, as the tribes and reservations seek to manage their resources, they will also benefit other outside the reservations who can provide capital, expertise, and other resources through trade.
The political advantages of decentralization would increase as well. These new independent enclaves embedded throughout the U.S. would create governmental competition. If the regulatory and tax burdens set by these independent governments are better than those of the U.S., U.S. citizens could vote with their feet and move to Native American lands, to the extent that these new countries would chose to accept them. Furthermore, currently only about a fifth of Native Americans live on tribal lands. The newfound opportunity in these countries would likely cause an influx of part of the seventy-eight percent Native Americans living outside of reservations. As the U.S. would lose part of its tax base, U.S. states and the federal government would face pressure to lower their tax rates, rollback regulatory burdens, and lessen political repression. Some reservations might even chose to act as tax havens just as they have used their limited sovereignty in the past to offer "gambling havens" to residents living in nearby jurisdictions where gambling is illegal.
It is true that, if the option of independence were presented, some tribes would choose to maintain their current relationship with the Department of the Interior. But many might choose self-determination. The result would be a continent that is more decentralized and offers more sovereignty for minority populations.
- 1. Cindy Yurth, “Census: Native count jumps by 27 percent,” Najavo Times, 2012.
- 2. Additionally, there are over 3,100 Native American reservations in Canada.
- 3. Shawn E. Regan, Terry L. Anderson, “The Energy Wealth of Indian Nations,” LSU Journal of Energy Law and Resources, Volume 3, Issue 1, (Fall 2014), pp. 208-209.
- 4. “Disparities,” Indian Health Service, 2018.
- 5. “Facts for Features: American Indian and Alaska Native Heritage Month: November 2015,” United States Census Bureau, 2015.
- 6. Laura Huggins, “How Government Perpetuates Native American Poverty,” The Property and Environment Research Center, 2010
- 7. Maura Grogan, Rebecca Morse, April Youpee-Roll, “Native American Lands and Natural Resource Development,” Revenue Watch Institute, 2011.
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.
Libertarianism. By Eric Mack. Polity Press, 2018. Vi + 167 pages. + online bonus chapter http://politybooks.com/wp-content/uploads/2018/07/Mack-Libertarian-FINAL-Online-Chapter-pdf.pdf
Eric Mack, for many years a philosophy professor at Tulane University, has a well-deserved reputation as a critic of philosophical arguments, and that talent is on abundant display in Libertarianism. In what follows, I shall comment on only a very few of Mack’s penetrating discussions.
The book is intended as an introductory guide to libertarianism, which Mack characterizes as “advocacy of individual liberty as the fundamental political norm. An individual’s liberty is understood as that individual not being subject to interference by other agents in her doing as she deems fit with her own person and legitimate holdings.” (p.1) The position may be defended with varying degrees of strictness, ranging from hardcore libertarians, who confine coercion to the protection of individual liberty, to soft-core libertarians, who allow coercion for a few additional reasons, such as aid when people are in “dire straits.” As the extent of permissible coercion grows, libertarianism shades into classical liberalism.
What is the justification for libertarianism? Mack distinguishes three principal answers, though noting that libertarianism can be defended in other ways as well. “There is the natural rights theme, according to which certain deep truths about human beings and their prospective interaction allow us to infer that each person has certain basic (‘natural’) moral rights that must be respected by all other persons, groups, and institutions.” (p.40)
Here I wonder whether one should make a distinction. Sometimes people use the term “natural rights” to mean basic rights, but sometimes people have in mind a narrower usage. In this understanding, it follows from human nature that human beings have certain rights. For example, in the Objectivist philosophy, because you need freedom in order to survive as a rational being, you have a right to freedom. There is no “is-ought” gap. Philosophers like Nozick, who accept the is-ought gap, would in this usage count as supporters of basic rights but not of natural rights.
The second justification for libertarianism “is the cooperation to mutual advantage theme, according to which general compliance with certain principles of justice engenders a cooperative social and economic order that is advantageous to all its members.”(pp.4-5) These two justifications vie in popularity among libertarians, but there is a third justification as well, though this has been less influential. “A third possible approach. . .is a form of utilitarianism that maintains that the greatest happiness must be pursued indirectly through steadfast compliance with certain constraining moral norms—as it turns out, pretty much the same constraining norms that are celebrated by the natural rights and mutual advantage approaches.” (p.5)
Mack takes Locke to be an example of the first approach, Hume of the second, and John Stuart Mill and Herbert Spencer of the third. Among twentieth-century figures, he concentrates on Robert Nozick as a representative of the natural rights approach and Friedrich Hayek as a representative of the mutual advantage approach. Mack devotes most of the book to a close analysis of these two great thinkers. He mentions Murray Rothbard, who exerted a profound influence on Nozick, several times, but I wish he had devoted more space to him. Mack in the bonus online chapter subjects to critical scrutiny a number of contemporary libertarians: Hillel Steiner, Doug Rasmussen and Doug Den Uyl, Loren Lomasky, and David Schmidtz.
In what follows, I shall comment on only a few points. These concern Robert Nozick though some of the issues are relevant to others as well. This makes for an idiosyncratic review, but Nozick’s thought has fascinated me since I first encountered it some forty-five years ago, and that is why I have chosen this path. Despite the narrow scope of my review, I hope that readers will gain some idea of Mack’s concerns and his style of argument.
Mack gives an excellent account of the argument, given by both John Rawls and Nozick, that utilitarianism does not take seriously the separateness of persons. The greatest happiness principle may require that you sacrifice yourself for the benefit of society. But, so the objection goes, this wrongly assimilates an individual’s sacrifice of part of himself for his overall good to the sacrifice of a person for the good of society. You may need to have your leg amputated to save your life, but there is no social entity having persons as its parts.
Mack considers a utilitarian response to the point raised by Rawls and Nozick, which does not rely “on the conflation of persons into a social entity.” (p.45) This response is that “what makes it rational for an individual to incur a lesser cost within her own life in order to attain a greater benefit within her own life is simply that the benefit is greater than the cost. The fact that the cost and the benefits are hers---that they both occur with her life---plays no role in making rational the production of the greater benefit at the lesser cost. Therefore, no contentious inference is needed to get from the so-called principle of individual choice to the principle of social choice.” (p.45, emphasis in original)
Mack responds on behalf of Rawls and Nozick to this rejoinder. They might reply that the rationality of prudential sacrifices within the life of one individual is “far less contentious” than the utilitarian’s balancing of costs and benefits across lives. (p.46) Can one show that utilitarian balancing is rational, without assuming the existence of a social entity with persons as parts? It seems doubtful that one can.
Mack’s response is excellent, but another answer is also worth considering. James Buchanan maintains that if one takes adequate account of the subjectivity of costs and benefits, a cost or benefit exists only relative to a single person. Your cost or benefit may be a cost or benefit to me, but only if I view it as one. I do not say that this view is correct, but it is at least worth considering. (Amartya Sen, like Buchanan a Nobel laureate in economics, thought there was a great deal to be said in favor of Buchanan’s view) If it is correct, benefits and costs cannot be added up across persons.
After a careful discussion of Nozick’s condemnation of using others as means, Mack says, “Nozick is concerned that his unqualified condemnation of using others as means will support anti-libertarian prohibitions, , for example, taking pleasure in another person’s appearance or trading with another person to one’s advantage. He then rules out such implications by declaring that, for the purposes of political philosophy, we need only be concerned ‘with certain ways that persons may not use others: primarily, physically aggressing against them. [quoting Nozick, Anarchy, State, and Utopia]However, this restriction is ad hoc because no reason is given for why political philosophy should only be concerned with this subset of usings.” (p.49, emphasis in original)
I do not think this objection altogether fair to Nozick, though it would be no doubt desirable to show how this view of political philosophy can be deduced from moral theory, as Nozick acknowledges. Confining political philosophy to the topic of when force is permissible (or obligatory) is not idiosyncratic to Nozick but a commonly used approach, especially among libertarians. He might respond to Mack, applying a strategy he often used on critics, ---much to their frustration, I might add---- that the problem of why political philosophy is thus confined is no more a problem for him than for anyone else. As such, it should not be taken as a decisive criticism of him.
Mack makes an excellent criticism of Nozick’s argument that if one starts with a network of competing protective agencies, as free market anarchists like Rothbard wish, “one of the protective agencies or the cooperative network as a whole seems to attain a natural ( non-coerced) monopoly in the provision of protective services.” (p.117), Nozick contends that if an agency or group of agencies attracts more clients than its rival agencies, there will be a cascade of new clients to it, because people will find it less costly to settle disputes if they are in the same agency. This will enable the largest agency to become a de facto monopoly. Mack is skeptical: “The fact that it may be less complicated and costly to resolve automobile collision claims when both parties are customers of the same insurance company has not led to one company having a virtual monopoly within the automobile insurance business. In addition, Nozick’s argument seems to overestimate the homogeneity of the services that competing protective agencies would offer.” (p.117)
There is an additional point here that seems worth making. Suppose that the process Nozick describes results in everyone’s joining the same agency. In that case, we would not have a state as Nozick characterizes it, because one of his requirements for a state is that it offers free or low-cost protective services to disadvantaged independents who are not its clients. Thus, Nozick requires for his argument to the minimal state to succeed that the very process by which the derivation starts will come to an end before it completes itself, but he offers no reason for this.
Mack raises against Nozick the specter of public goods. “For our purposes here, we can think of a public good as a good which, if it is produced and enjoyed by some members of a given public, cannot readily be withheld from other members of that public. . .The standard and useful example of a public good is national-scale defense. . . The conventional economic wisdom. . .is that the total value of the orders that the state or firm [ that offers defense services]will receive will be markedly less than it naively expects.”(p.122) People will prefer to free ride, hoping that others will pay for the good; but if everyone reasons this way, the good will not be purchased.
Mack is certainly right that if anarchist protective agencies or a Nozickian minimal state, lacking the power of taxation, proved unable to supply effective defense, that would be a serious objection indeed. But I think his argument has moved too fast. According to the customary neoclassical analysis, public goods will not be supplied efficiently. It does not follow from that, though, that the good will not be supplied at all, or in a quantity insufficient to “do the job.” The extent of the supply is an empirical matter. It is not a requirement for a theory of libertarian rights that it never requires efficiency losses, as neoclassical theory defines these. (The same difficulty also applies to Mack’s argument for a “dire straits fund” on pp.39-40 of the online bonus chapter.)
Suppose, though, that the free market turns out to be unable to supply defense. Would Mack then be correct when he says that a taxation minimal state may be justifiable on Nozickian grounds? He says, “Persons’ rights indicate what must not be done to them---or more specifically, what must not be done to them without their consent. But what about cases in which consent is not feasible?. . .A person’s right over her own body entails that she has a right not to be cut open without her consent even by an expert surgeon seeking to save her life. However, what if the person who needs that surgery to save her life is already unconscious and, hence, unable to give consent? If it is permissible for the surgeon to proceed with the needed surgery on the already unconscious individual, this seems to be true because the requirement that the subject consent to the physical intervention is really a requirement that she consent if and only if consent is feasible.” (pp.123-124)
If this is right, then, “the libertarian advocate of the TMS may argue that, precisely because of the non-feasibility of attaining consent from individuals to make payments in exchange for the public good of rights-protection, it is permissible to impose those payments without actual consent.” (p.124, emphasis in original)
I do not think this argument succeeds. In the first case, it is permissible to proceed with the life-saving operation because there is reason to believe that is what the patient would want. Most people would. Had she given instructions beforehand not to operate, then the operation would not be permissible. In the taxation case, the reason consent is not feasible is that people refuse to consent. It is hardly plausible to say that I may force you to pay me for my services, because, owing to your refusal of my services, getting your consent is not feasible.
Mack himself raises an important problem for the argument for the taxation minimal state. ”Recall. . . . .that this defense of the TMS turns on a striking assumption about information. It assumes that the state’s tax assessors would know, for each assessed party, what magnitude of taxation would leave that party net better off in light of the value for that party of her receipt of the tax-funded public good of protective services.” (p.124)
In Libertarianism, Mack does not, for the most part, discuss his own views but confines himself to the exposition and criticism of others. An exception is his brilliant presentation of Mises’s calculation argument against socialism (pp.58 ff.), one of the best known to me, where it is clear that he endorses the argument. Readers should be aware though, that Mack has written a large number of papers setting forward his own views in great depth and detail. Readers of Mack’s work will encounter a very fine philosophical intelligence. Few can approach his power of critical analysis. Libertarianism is must reading for anyone interested in libertarian theory.
 For challenges to the neoclassical analysis of public goods, see Ludwig von Mises, Human Action, Chapter 23, pp.650 ff; and Anthony de Jasay, Social Contract, Free Ride. See also the discussion in David Schmidtz, The Limits of Government.