Deregulate the Policing Market

Deregulate the Policing Market

Priti Patel (the UK secretary of state, akin to the US’s attorney general but with a much wider purview) has been recently considering new laws to tackle a spate of dog thefts across the country. The crime wave has been spurred by lockdown measures, with many people desiring “covid pets.”

This increase in demand for pets, especially dogs and puppies, has led to an increase in prices, with some puppies now costing as much as £1,883. Most Austrian economists will not be surprised that the “the bureaucracy is expanding to meet the needs of the expanding bureaucracy” but where a problem is presented that seemingly needs a solution, what else is to be done?

In this case it’s existing regulation (prelockdown) that is causing the most major problems for this not to be a state issue. It's about crime and how it pays. According to the most recent data (as of July 2019), only 7.8 percent of all reported crimes in England and Wales end in a conviction.

The usual calls when this happens are for more police to be dropped on the streets, as if this were some God Simulator computer game where spawning enough units eventually gets the job done while the economy shuffles on certis paribus. But this is the real world, and the economic constraints of resources, funding, training times, and acquiring competent applicants exist.

So what is the alternative? Deregulate the policing market. Why should we leave a government monopolist police to concentrate on petty theft and dog napping when rape convictions are at their lowest point ever? Private police forces already exist in the UK, mostly in response to state budget cuts (another argument against monopoly is that the state’s ability to “giveth and taketh away” on a whim often does not correspond to local demand).

However, the role of private police forces needs to have the support of the home secretary in regard to jurisdiction. This became the issue with the port authorities (who have had private police in the UK since the 1840s). Delivering criminals from the port to custody meant breaching a “mile radius” zone of jurisdiction and so making it illegal to bring a criminal to justice! Luckily the powers of the constable were increased to ensure this was legal.

Private policing, being nothing new, adds a whole host of benefits to the area of policing as well, including increased conviction rates and reduced costs. There are opportunities for communities to have their own police from their own backgrounds (the UK police are still not trying to understand why young black men won’t join the Met [Metropolitan Police] or why nationalists won’t trust the PSNI [Police Service of Northern Ireland]).

The state police are needed at the moment to deal with serious crimes: rape, murder, child grooming, and abuse. These serious damages to person are in a rational society detestable, and no one, excepting the most lunatic fringes of liberal academia, would want to see their perpetrators roaming the streets. Whether these are sent for treatment or punishment is another debate, but their exclusion from society is accepted by most.

So let’s give the private police a chance to prove that this is a market that can not only reduce the government’s time and money, but can have an exponential amount of positive externalities. We can begin to let people trust their own police, run by them for their community, in accordance with the laws of the land, of course. This is not a call for miniwarlords, just a way for the market to prove its efficiencies over the state.

It’s unlikely, given the new Tory (see Labour) method of tax and spend that an actually viable, free market solution will be picked up. However, getting this conversation started and offering solutions that are more than just “stop and search” or “hug a hoodie” is important. We must look to all the options before our police force is given powers they don’t need to fight crimes that are none of their concern or dwindle into a restricted, powerless force that simply protects the wealthy and is mistrusted by everyone else.

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All Inflation Is Government-Caused

06/25/2022Jason Morgan

On June 19, 2022, geopolitical analyst Ian Bremmer posted the following on Twitter:

us: left govt, high inflation
uk: right govt, high inflation
germany: centrist govt, high inflation
italy: everyone in govt, high inflation

wild guess it’s not the govt

— ian bremmer (@ianbremmer) June 19, 2022

In a follow-up tweet the next day, Bremmer wrote:

1 - independent central banks:
printing like crazy

(powell: the one man trump and biden agree on)

2 - pandemic causing massive swings in supply and demand

3 - russia war disrupting supply chains

— ian bremmer (@ianbremmer) June 20, 2022

It’s possible that Bremmer is being sarcastic. In which case, I would like to be the first to welcome him to the Austrian Club.

But my reading of Bremmer’s tweets is that he’s quite serious. If I’m right to read Bremmer straight here, then it’s worth pointing out that the premise of just about everything Bremmer wrote in these two short bursts is wrong.

Let’s take the first tweet first. Bremmer apparently wants to say that all kinds of governments exist, and there is inflation everywhere, so clearly it’s not the government that’s causing inflation. This is fallacious on its face. Logic just doesn’t work this way. “All x are doing y, therefore x is not the cause of y,” is, well, silly.

That’s hardly the only problem. As some of the people replying to Bremmer’s weird logic also indicated, the “left-right-center-everyone” mapping which Bremmer applies is bogus. Government is government is government, and it doesn’t matter which slogans get slapped onto which campaigns. On that narrowcast reading alone, Bremmer’s assertions don’t hold water. The globalist Boris Johnson is a rightist? That’s comical, but one has to suspend disbelief on this score to make Bremmer’s tweet work even on this low level.

We can strip the phony politics away and go even deeper, however. Indeed, the reason why all governments are alike is where we get to the heart of Bremmer’s fallacy. Take a look at the first claim in his second tweet. Bremmer thinks that central banks are “independent.” His proffered reasoning is that Federal Reserve Chair Jerome Powell is “the one-man Trump and Biden agree on.” Ergo, for Bremmer, Powell must be an “independent”—he serves two masters in a way pleasing to both. It can’t be government that’s causing prices to skyrocket. Must be something else.

But Bremmer raises a question. And in doing so he sets up a tautology. That tautology is precisely the reason why Bremmer (if he’s being serious) is wrong that governments don’t cause inflation.

The implied question is: Does Powell’s being “the one-man Trump and Biden agree on” make him independent, or does it make the government monolithic? The answer is behind door number two. Powell is not independent. He’s just one head of a Hydra with a Georgetown address. Powell without government, and government without Powell—neither is possible. There’s your tautology.

The central bank of the United States (and the same is true in every country) is a purely political institution. Powell isn’t some monastic who stumbles in from his desert retreat to soothsay the economic future. He’s neck deep in the Washington swamp. He just happens to be very good at what he does, which is why he still has his leather chair in the Fed building. Like all Fed chairmen, Powell is a paid alchemist who transmogrifies, with magical economics-sounding incantations, the usually stupid ideas of politicians into seemingly de-politicized policy positions. Powell is good at reading a room and coming up with a number pleasing to his boss (and it makes zero difference whether the boss is with Team R or Team D). He’s like the oracle at Delphi. Or like Dylan. He doesn’t need a weatherman to know which way the wind blows.

You have “elections.” You have a clueless citizenry. You make it all work out, and you do so with a look of high-economic gravitas, as though the gods had ordained the chicanery you are peddling. That’s what makes you the Fed chair.

And it isn’t just that central banks are not independent of governments. It’s that, much more consequentially, governments are not independent of central banks. Governments as we know them in the twenty-first century would not, could not, exist without central banks. Without the “printing like crazy” phenomenon that Bremmer bemoans, there would not only be no inflation. There would be no fiat money, period. No fiat money, no government. No government, no Powell. Can it be that Bremmer truly doesn’t understand this?

Bottom line: Government spending doesn’t “cause” inflation. Government spending isn’t to inflation what, say, reading in low light is to ruined eyesight. It isn’t as though, over time, whoops, all that government spending caught up with you and, dang, you’ve got some inflation. Government spending under modern monetary theory (fiat money) regimes is inflation. There is no difference. It’s total identity. A is A. When a government prints fake cash, that’s inflation. From the get-go. There is no non-Ponzi Scheme way to understand the mechanism.

This is why governments can do nothing but make inflation worse and worse. The more cash an “independent” central bank prints (and on whose behalf does a central bank print cash if not the government’s? —even in the case of Fed, which is a private cartel designed to enrich globalist bankers, the get-out-of-jail-free card for counterfeiting American currency comes from the government), the more inflation chokes us. You can’t get something out of nothing. But that’s just what governments do—all of them.

Of course, governments can play with systems and inflate asset prices (with more fake money) to keep the downstream effects of inflation from biting for a time. But there’s only so high you can build a dam. One day, whoosh. And then Joe Sixpack can’t afford to fill up his truck.

That’s when politicians start blaming everyone but themselves.

Now, armed with these insights, we can handily dismantle claims 2 and 3 from Bremmer’s second tweet. The pandemic? Who owned the Wuhan lab where the virus was made, pray tell? Was it a private-citizen mad scientist cooking up superbugs in his spare time? Of course not. It was the Chinese Communist Party, a government institution if there ever was one. Statism on creatine, the CCP is. The Wuhan virus is the Wuhan virus because it came from a Communist-owned and -operated government lab in Wuhan.

And who paid for the Wuhan bug? Why, we did. Our taxes—siphoned out of our phony-currency bank accounts by the same rapacious government which can’t control its own spending in the first place and so needs to go on April Viking raids every year—were sent to Wuhan so a real mad scientist (with a New York accent) could skirt American laws and concoct a virus to fulfill his statist overlords’ dream: a lockdown. Under a lockdown, everyone begs the government to print more money. Everyone clamors for a “stimulus.” The people ask for inflation.

And, boy, do the politicians give it to them. Only too happy to oblige. It almost got Trump re-elected. (He wasn’t counting on another kind of inflation—ballot inflation. But that’s a story for a different day.)

Finally, Russia? That’s the least swallow-able excuse of them all. It asks us to assume a hundred years of history that just isn’t true. Has the United States of America been minding its own business all this time, not getting caught up in useless foreign wars and not, say, pushing a neo-imperialist Cold War Museum relic right up to a distant country’s doorstep? Um, no. After years of warnings about that old Cold War stunt, the distant country’s leader had enough and pushed back. Supply chains disrupted. What did Washington expect—that Putin would destroy the wavefront of NATO politely, perhaps with a strongly worded letter to the UN?

And anyway, for a century Washington has been pouring money into idiot crusades in the Middle East and Central Asia, in Africa, in Europe, in Latin America. In Southeast Asia, if you’ll recall. All of that cost buckets of fake money. To the best of my knowledge, Gerald Ford didn’t blame inflation in the 1970s on the Viet Cong. Then again, apparently Americans five decades ago weren’t quite as gullible as we are now.

Today, there seem to be geopolitical analysts who seriously believe that none of the above has any bearing on the price of sweet tea in Alabama. That “independent” central banks are to blame for printing all those dag-blasted hundred-dollar bills. That no one can afford a steak dinner anymore and it must be—yet again, for the eleventy-seventieth time—Vladimir Putin’s fault.

How I wish Ludwig von Mises and Murray Rothbard were alive today. I would love to see what they would have written on Ian Bremmer’s Twitter page.

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Our No-Win "Kobayashi Maru" Economy

It's time to reprogram the conditions of the economy to serve the many rather than the few.

Star Trek's Kobayashi Maru training exercise tests officer candidates' response to a no-win scenario: any attempt to rescue the crippled ship's crew results in the destruction of the candidate's ship, while standing by and taking no action results in the loss of the Kobayashi Maru's crew.

Captain Kirk famously defeated this no-win scenario by reprogramming the simulation to "change the conditions of the test." This can be viewed as either cheating or as creative problem-solving via "thinking outside the box."

The Kobayashi Maru is a very apt description of both the U.S. and the global economies, which are currently running a real-world no-win scenario called "Profits, Infinite Growth, Low Inflation, Full Employment." (PIGLIFE). To win in the PIGLIFE scenario, you need permanent expansion of GDP, consumption, profits and employment and a permanently low limit on inflation. Anything less and you lose.

Central banks and political leaders have managed to "win" the PIGLIFE scenario for decades, but at a cost that can no longer be cloaked by happy-happy statistics. The economy has been fatally hollowed out into a fragile shell of monopolies and cartels profiting from hyper-financialization and hyper-globalization, a system in which the only possible outcome is hyper-inequality and hyper-self-exploitation as the immense profits enable the purchase / capture of political and regulatory power.

Now that the PIGLIFE economy has stripmined all the easy-to-exploit resources and workforces, scarcities are pushing inflation far above the "winning" low level. Oops, you lose. Now the real teeth in the Kobayashi Maru scenario are bared: if Central banks and political leaders close the spigots of "free money" that's been expanding GDP, consumption, profits and employment for decades, then all those slide from expansion into contraction.

But if they keep the spigots of "free money" wide open, inflation threatens to feed back in a self-reinforcing loop of expectations of higher inflation that push inflation higher, which then justifies the expectations which then push prices, wages, etc. higher.

Meanwhile, the two engines of the PIGLIFE expansion, hyper-financialization and hyper-globalization, have dived off the cliff of diminishing returns. Boosting debt, leverage and globalized supply chains aren't generating expansion, they're actively undermining whatever "growth" is still sluicing through the PIGLIFE economy.

So sorry, Central banks and political leaders, you lose. The way you've rigged the system, it goes into self-reinforcing contraction if you close the spigots of "free money" even modestly. But if you don't, the Klingon ships of inflation destroy you. The more you push hyper-financialization and hyper-globalization as "solutions," the greater the destruction.

Clearly, we need a new set of conditions for prosperity and well-being that do not rely solely on expanding GDP, profits, consumption and employment. Many economists, for example, Joseph Stiglitz, have proposed retiring GDP as a measure of prosperity and well-being and using more accurate and sustainable measures of well-being to inform policies.

If we've learned anything, we've learned that enriching the already super-rich so they have even greater means to distort democracy to serve their private interests undermines the prosperity of the many rather than increases it. It's time to reprogram the conditions of the economy to serve the many rather than the few, and enable a truly winnable scenario of sustainable prosperity and well-being by tossing the "waste is growth / Landfill Economy" PIGLIFE model into the toxic waste dump of failed, no-win scenarios.

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There’s No Guarantee (Gas) Tax Cut Savings Will Be Passed on To Consumers

06/24/2022Connor Mortell

On June 22, President Joe Biden called for a tax holiday for the next three months. As of this writing, it still has to be approved by congress. Many critics have come out in response to this. Among them, Nancy Pelosi has called it nothing more than “showbiz” as she doesn’t expect the 18 cents per gallon savings to be meaningful, Reason magazine has argued that it is taking away a tax for roads that was levied somewhat proportionally on individuals based on how much they drove, but perhaps most interestingly of all - at least from an economics standpoint - was this criticism brought by NPR:

Biden also called on state governments to take similar actions with their gas taxes. He wants oil refiners to boost their capacity so there’s more gasoline on the market - another way to bring down prices. But there’s no way to force those tax cuts to be passed through to the consumers.

In October 2021, I wrote almost the exact inverse of this point: Why Business Owners Can’t Just “Pass on'' Tax Costs to Consumers. Then White House press secretary Jen Psaki had claimed that American consumers would not stand for large companies passing on tax costs to consumers. I claimed that - while probably for the wrong reasons - she was right. The logic stemmed from Murray Rothbard’s Power and Market:

The most popular example of a tax supposedly shifted forward is the general sales tax. Surely, for example, if the government imposes a uniform 20-percent tax on all retail sales, and if we can make the simplifying assumption that the taxes can be equally well enforced everywhere, then business will simply “pass on” the 20 percent increase in all prices to consumers. In fact, however, there is no way for prices to increase at all! As in the case of one particular industry, prices were previously set, or approximately so, at the points of maximum net revenue for the firms. Stocks of goods or factors have not yet changed, and neither have demand schedules. How then could prices rise?

We now find ourselves in the opposite position. Can the removal of a tax drive down a price? The answer is a little more complicated. Rothbard explains above that taxes cannot be shifted forward to the consumer and goes on to explain that instead taxes are shifted backwards to the original factors of production. Less can be spent on them and thus - as Per Bylund has explained:

Entrepreneurs are forced to abandon some of their efforts to generate new value by satisfying customers, or to redirect their efforts into less value-producing channels. The potential output of their creativity goes Unrealized.

It is here that a tax holiday is able to help. Because less cost will be shifted backwards to original factors, original factors will be able to be better allocated to projects that will actually generate new value by satisfying customers.

As a result, to a very large extent, this specific criticism of the gas holiday is right. There is no guarantee that the savings from the holiday will be passed on to the consumers. This, however, does not ultimately discredit the tax holiday itself as the savings will still benefit consumers. Original factors could be better allocated in such a way that does in fact make gas prices cheaper as market competition drives prices down in the absence of these taxes in a very happy go lucky solution that ties this all up in a nice little bow as we look back on it.

But even if that is not the case, the original factors would still be put to a preferable use on the market when they are not hampered by the restrictions on their prices by the government. So, while it is correct that we may or may not see these savings passed on to the consumer, it is also undoubtedly correct that the removal of this tax would in face benefit the people.

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Central Banking: The Root of Economic Instability

06/24/2022Liam Cosgrove

 “An economic foundation that was built on cheap money and debt.”

Bond and equity markets have collectively seen one of their worst years on record. 

This may come as a shock to those who have followed mainstream financial outlets over the past two years, as everyday we were reminded of the “robust” recovery and “strong” labor market. 

But our economy is far too dependent on central bank policy. Peter Boockvar is a financial analyst with the Bleakly Financial Group. He sums the problem up succinctly: 

Markets and the economy… do well when the central banks are easing and cost of capital is cheap and the liquidity is flowing. But then it all reverses when they tighten monetary policy.

Boockvar adds that we are operating under “an economic foundation that was built on cheap money and debt.” Low interest rates, while incredibly stimulative for capital markets, have destroyed small/medium sized businesses and injured most banks. 

Smaller banks without access to cheap liquidity must earn the old fashioned way - lending out deposits and capturing the spread. In the falling interest rate environment of the last 40 years, these spreads have become increasingly thin, which might explain why the number of banks in the US fell by 80% from 1980 to 2020.

Another consequence from decades of accommodative monetary policy is, according to Boockvar, the exponential increase in economic fragility that results from each subsequent easing cycle. 

As interest rates remain low, businesses and households are able to borrow more. Then, when the Federal Reserve decides it is time to tighten, the large accumulation of debt means the economy cannot bear even moderately higher rates. 

This dynamic is clearly represented in the historical Fed Funds Rate chart:

We see that since the 1980’s, when Volcker aggressively tightened into recession to tame inflation, each subsequent Fed tightening cycle was unable to reach its previous height before triggering a recession (indicated by the gray vertical lines). 

This tightening cycle will be no different, and in fact may be worse. 

According to Boockvar, “We’re just getting a rerun of the same movie we’ve seen many times before… This is a sequel with scarier characteristics,” due to inflation and rapid pace of the central bank’s response.

The US has not seen serious inflation since the early 1980’s. Will the Fed tighten through a recession? Listen to more of Peter Boockvar’s insights in his full interview here:

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Why Prices Have Gone Up

06/22/2022Robert Aro

Central bank “stimulus” is a nonsensical policy approach which caused prices to surge over the last two years. Look at the charts below:

The Fed’s balance sheet is currently at $8.9 trillion:

Since January 2020 it has increased by nearly $5,000,000,000,000, meaning the central bank created 5 trillion dollars so the world could “buy more stuff.”  The $8.9 trillion balance is not money in the Fed’s bank account; rather, entities such as large banks and financial institutions owe this money to the Fed (i.e., accounts receivable). Typically, the new money raises the prices of stocks, bonds and real estate first.

Also consider M1 and M2, as they are the most commonly used measures of the money supply.

The above is the M1 money supply, currently at $20.6 trillion. Part of the large spike is due to a revision of the definition of M1 occurring in May 2020. However, since then, M1 increased by over $4 trillion dollars, still a large amount.

From January 2020, the M2 money supply increased by over $6 trillion, per below:

Included in these trillions of newly created dollars are various Fed/Government programs, such as the Paycheck Protection Program, which has forgiven over $700 billion of “loans” to business owners. As I wrote in April of 2020, they were literally “paying people not to work.”

There were also several stimulus check programs congress approved that approached $1 trillion.

It cannot be stressed enough, these trillions of dollars were created “out of thin air,” and given to people across the country. A large portion of the money went into the traditional inflationary channels such as big Wall Street firms to inflate asset prices, but several trillions of new dollars also went to pay individuals on Main Street. The money received by individuals could have been spent anywhere: crypto, gold, guns, gambling, drugs, alcohol, eating out at restaurants, clothes, or on Austrian economic books.

The thought of receiving “free money” from the government may initially sound appealing. But eventually the money mirage stops and society discovers these government giveaway programs carry grave consequences such as currency debasement, and therefore, more poverty. Ironic because the stated aim of these policies is to help society; yet the result is the exact opposite.

The COVID monetary relief schemes couldn't have been more poorly timed as large swaths of the economy were shut down in 2020. Imagine the unsurprising result: increasing the money supply (via stimulus checks) increases the cash balance for millions of people, enticing recipients to spend more money. But shutting down the economy decreases the amount of goods available to purchase. In such a world, prices invariably rise.

Removing the closure of the economy from the equation, the problem with central bank stimulus still exists. If the government gives $1,000 to enough people, this new money enters the economy, increasing demand for goods. One of the many factors mainstream economists fail to include in their models are the stages of production. In the real world, production takes time. It is not instantaneous. It also carries a cost. Even if the economy were running “smoothly,” entrepreneurs could not automatically increase the supply of goods to meet the new (monetary induced) demand. To increase production, they’d have to incur more upfront costs, drawing upon savings, credit or obtaining alternative financing methods.

Shutting down the economy while giving stimulus checks only added gasoline to the dumpster fire. Forget about Trump or Biden. The Powell era of central banking must stand as one of the worst, if not the absolute worst, eras of American economic history. Increasing a nation’s money supply to stimulate demand historically impoverishes nations. Yet, that is precisely what they did.

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Shining Path II? The Dangers of Andean Agrarian Socialism

Currently, a new cycle of protests involving the Ecuadorian indigenous peoples’ organization is happening, following another cycle that took place in October 2019 and paralyzed the country for two weeks, resulting in 8 people dead, various hundreds of other people injured, including law enforcement officers sent to diffuse the demonstrations. The Ecuadorian State comptroller building was burned and sacked, severely damaging the patrimonial buildings of the Spanish-style Historic District of the capital city of Quito, and overall costing the Ecuadorian economy almost $83 million in damages.

All this destruction just to force the government to reverse austerity measures decided by then President Lenin Moreno to end the government subsidies to lower gas prices, undertaken in a failed attempt to liberalize and stimulate the Ecuadorian economy.

Back then, as well as today, the protests were spearheaded by the Confederation of Indigenous Nationalities of Ecuador, known by its acronym in Spanish, CONAIE, the country’s largest indigenous organization, led by Leonidas Iza, an Andean Kichwa native, with well-known leftist sympathies and ideas, close to the thought of Peruvian agrarian socialist ideologue, José Carlos Mariátegi, whose ideas (along with those of China’s Mao Zedong) would inspire the activities of Shining Path, a communist terrorist group responsible for around 60,000 deaths in a conflict against the government of Perú that has lasted for four decades.

But back to Iza, only a little more than a year after the 2019 protests, he co-authored, with a couple of leftist academics aligned to his Marxist-indigenous cause, a book titled Estallido (a term that could be translated as outbreak) in which they outlined the steps in their revolution towards power. The first step calls for direct action against government institutions and capital structures and the second is defining their friend/enemy distinction between various local leftist groups, including worker unions, the indigenous peasantry and progressive allies in cities against what they consider to be a counterrevolutionary alliance of right-wing populists, banking conservatives, social-democratic technocrats, a bureaucratic bourgeoisie and modernizing liberals.

He and his co-authors continuously quote the work of Mariátegui, as well as of others Socialist intellectuals like George Sorel, who is particularly known for his advocacy of violence, and end their book with the battle cry of “Amerindian communism or barbarism,” as if the actions of their movement in the 2019 protests were not barbaric, and, on the contrary, the market structures of capitalism were the true oppressors.

Iza’s actions and his book were praised by many people in Ecuador, mostly urban intellectuals, looking to capitalize on the situation and get court positions in the potential new order under the Marxist-indigenous leader. The intellectuals, however, do not realize the danger his ideas represent for Ecuadorian society, because, in many senses, what Iza did, promotes and is trying to repeat right now, is just another chapter in the long and bloody history of the global left, from Marx to Hitler, as accounted by Erik von Kuehnelt-Leddihn.

However, Leonidas Iza and his “Amerindian communism” should not be just considered as another case of intellectual leftism that appeals to those “who dream of action but never act,” as described by Mises. Instead, he is an alarmingly latent Pol Pot wannabe, for whom his vision of an indigenous, fully agrarian socialist country has to be built from the ashes of a failing republic consumed by the fire of revolution, a view he has repeatedly advocated for by demeaning the majority mestizo ethnic group in Ecuador while protecting himself from accusations of racism by virtue-signaling his indigenous ethnicity.

By his actions, Iza’s movement and ideas prove, once again, that Mises was right by defining fascism in the same terms as socialism, that is, that:

    …the fundamental idea of these movements […] consists in the proposal to make use of the same unscrupulous methods […] to exterminate its adversaries and their ideas in the same         way that the hygienist strives to exterminate a pestilential bacillus; it considers itself in no way bound by the terms of any compact that it may conclude with opponents, and it deems any      crime, any lie, and any calumny permissible in carrying on its struggle.

Nevertheless, for a self-professed Marxist follower of Andean-style Maoism, Iza’s Amerindian communism tends to be closer to fascism than to Marxism itself, given that, as Roderick T. Long explained,

     …where Communist ideology tends to be cosmopolitan and internationalist, fascist ideology tends to be chauvinistically nationalist, stressing a particularistic allegiance to one's country,       culture, or ethnicity; along with this goes a suspicion of rationalism, a preference for economic autarky, and a view of life as one of inevitable but glorious struggle….

All of these elements are present in the direction CONAIE has been tacking under Iza’s leadership, given its close indigenous ethnic component, its fondness for direct action and local, backwards agrarianism, and its violent effort for political dominance. Of course, the agrarian socialism he promotes should be by itself another big red flag, pun intended, about his intentions, for which a number of logical inconsistencies become more and more apparent the moment one stops to think about them.

For instance, he has continuously given contradicting public statements calling for the end of the oil extraction industry in Ecuador and then shouting about keeping gas prices under government subsidies, arguing that artificially low prices are a necessity for the use of tractors in agriculture. This when tractors themselves are a capital good that almost no already poor Ecuadorian indigenous peasant could even try to afford under our highly intervened economy.

All of these incoherencies are then promoted under the wraps of a political discourse with heavy Ted Kaczynski undertones, which could only mean that if his brand of Amerindian communism ever gets applied, it would only mean a man-made Malthusian trap. His actions also speak for him, as for the times he has called for public demonstrations, private property has suffered the most, with businesses having to close for many days, going bankrupt, and looting becomes commonplace with the mere notice of his calls to action against the government.

Leonidas Iza is the kind of person that reminds us that we still have to fight the last wars against socialism, for his ideas and his actions would only bring even more ruin to a country like Ecuador., To simply defeat him, however, would mean nothing when ideas like his can be easily recycled by other socialist opportunists, for socialism, which appeals to envious people who crave for security and are afraid to make decisions for themselves, must vanish from the minds of reasonable human beings, as it impairs human dignity and crushes man utterly, a lesson learnt from both Austrian intellectual powerhouses, Mises and Kuehnelt-Leddihn.

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The Latest Predictions

06/20/2022Robert Aro

After the 75-bps rate hike last week, Powell took to the stage, saying in just his third sentence:

We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.

The public can hardly feel confident in this. When taking the Fed’s latest median projection of Personal Consumption Expenditure (PCE) inflation, they don’t project seeing 2% inflation until some time after 2024, in the longer run, per below:

They even provide different perspectives of their data, like the one offered on this chart:

The expectation is that PCE inflation will peak this year and will level off back to 2% in the long run… of course, why they believe this and what data, if any data, they are using to arrive at these projections is beyond the knowledge of anyone outside of their top experts.

Future inflation is not all they predict. There is also the Fed’s dot plot chart, used to guide future interest rates:

According to participants, rates still have a long way to go, possibly reaching over 3.5% this year. That’s not even the expected height of it, as, in 2023 rates may well be into the low 4% range. It's only after 2024 rates are expected to be back around 2%.

As far as future outcomes for GDP and employment, the Fed predicts things will be quite all right for the foreseeable future:

No negative GDP is forecasted from 2022 and into the long run, while the unemployment rate is expected to persist around its current levels, from now and also past 2024.

Something eerily absent from all these predictions is any sense of a market downturn, or a recession. Even without employing lessons from the Austrians, or using ideas about the boom-bust cycle, one would think that the Fed’s shrinking of the balance sheet should give some cause for concern.

To go from a $5 trillion increase in the balance sheet in two years, to monthly decreases is no easy task. Even in my previous article I showed a visualization of the Fed’s holdings of US treasuries and how the last two times the Fed reduced holdings corresponded with a market crash and recession. Given the state of the world, the already high prices we’re seeing, and the Fed tightening to come, one would think a less than optimistic outlook would be reflected in their projections.

The problem with projections is that anyone can make them; however, there is a reason why the Fed’s projections are so detrimental. In the private sector, the entrepreneur must make predictions, forecasts and estimates all the time. They must anticipate future costs, sale prices, quantity demanded, consumer appetite, and countless other factors. They perpetually navigate a world of uncertainty. When the entrepreneur fails, the loss is borne by the entrepreneur first and foremost.

This is the opposite of how the Federal Reserve operates. When their predictions, forecasts, and policies are wrong, the errors, mistakes and failures are borne by society as a whole.

Should PCE inflation be twice, three times, or even five times higher than 2.6% in 2023, the Fed will explain why their forecast was wrong and revise accordingly. Unlike the entrepreneur who risks their own livelihood brining a product to market, weighed against the risk of going bankrupt due to potential failures, the Fed will not go bankrupt no matter the failure. In fact, not only will the Fed not go bankrupt, they’ll use any crisis as justification for more money printing endeavors, enriching themselves and those closely connected first and foremost.

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No, Inflation Is Not a Product of Corporate Greed

Seventeen months ago, as the keys to the oval office changed hands, for all of the political animus and theatrics, one thing seemed a given: the US economy would roar back to vitality in historic fashion, a point of optimism in a nation of discord and incertitude. Yet hope would give way to ambivalence, which, in turn, gave way to serious doubt. Today, a pathetic 23 percent of Americans feel economic conditions are even “somewhat good.” The primary reason for such abysmal economic sentiment? Inflation.

As consumer prices have accelerated out of control over the past year, a new political narrative on inflation has emerged, one that alleges corporate impropriety as the primary catalyst. The motive for such a messaging shift from select members of the political apparatus is clear: a need to shirk accountability for evidently inflation-inducing policies. Unfortunately, the corporate greed narrative has apparently paid dividends to its progenitors, garnering increasing acceptance among the body politic at large. Indeed, according to one poll from Data For Progress, a majority of likely voters now believe price-gouging is a major contributor to heightened inflation. However, that inflation is brought about by corporate greed is a sophistic political lie in every respect.

Yes, corporations are greedy. People are greedy. It turns out that greed is a natural characteristic of the human condition. It always has been. Why, then, has inflation only recently exploded after 40 years of calm, now clipping along at better than four times the Federal Reserve’s target annual rate of two percent?

In May 2020, the Consumer Price Index (CPI) grew just 0.1% year-over-year. Are we to believe that corporations were simply feeling particularly benevolent, only to reverse course in dramatic fashion the very next year? Of course, that is preposterous. 

But the prevailing evidence that peddlers of the corporate greed narrative have repeatedly cited is the reality that corporate profits are at historic highs. This is, in fact, true. But it is entirely irrelevant to inflation itself and is not even indicative of any measurably intensified greed.

The Producer Price Index (PPI), which measures cost increases for businesses, is up 10.8 percent from last year. With consumer prices rising at 8.3 percent over the same period, this frankly means that American businesses en masse are likely not even passing on the full extent of the higher costs they themselves are paying, to consumers. So how can this be, even as corporations are raking in record profits? The answer lies in a distinction that the corporate greed crowd will never make: the distinction between corporations and businesses

In fact, just five percent of businesses are corporations. While the CPI measures the general prices that businesses are charging, corporate profits figures only measure the profits of large corporations. Yet it is chiefly small businesses that cannot afford significant increases in the cost of doing business because they have fewer resources than their larger corporate counterparts. Thus, it is highly probable that small businesses, which account for nearly half of American GDP, are primarily driving broad price increases, on no account of elevated greed, but rather as a result of an increase in their own cost of doing business.

Former Labor Secretary Robert Reich is perhaps the most prominent purveyor of the corporate greed doctrine of inflation. If anyone can point to resounding evidence of malign corporate price-gouging, it should be Reich. In an article laying out his argument for “corporate power” being the catalyst behind record inflation, Reich condemns multinational coffeehouse chain Starbucks for announcing price hikes earlier this year despite being “so profitable.” 

What the twice Ivy-educated pundit fails to mention is that Starbucks’ Q1 2022 earnings were cut by more than half when compared to Q4 2021, despite revenue holding steady. Q2 2022 earnings dropped below that of even Q1. What’s more, the company reported lower earnings in 2021 than it did back in pre-Covid 2018, despite having higher revenues. Reich even conveniently ignores the fact that Starbucks recently revealed it would be raising its minimum wage to $15 per hour nationwide beginning this summer. 

Evidently, Starbucks isn’t the insatiably gluttonous enterprise that Robert Reich would like you to believe it is. And this seems to be a common theme with many of the companies that he and others proffer as evidence of nefarious profiteering. But it still doesn’t answer for why corporate profits are at historic highs. First, it is important to understand that corporate profit margins are not significantly higher than they were pre-Covid. With that established, it is likely that inordinate growth in consumer spending since the Covid recession is largely to blame for record profits. Needless to say, when Americans drop unprecedented quantities of cash on consumer products, companies whose costs don’t rise significantly fare pretty well.

Certainly, it is understandable how the corporate greed dogma has caught on with vast swathes of the American public. Rancorous anti-corporate sentiment has been prevalent in America for years, and corporations, as such, make for quite convenient political scapegoats. But any effort to broadly place culpability for inflation on the private sector is demagoguery at best, and almost always attempted by ultracrepidarian activists rather than studied economists. 

The reality is that the true offender behind record inflation is the US government. The Federal Reserve has inflated the money supply by over 40 percent since the beginning of 2020, allowing congress to hand out checks to the public and driving an unhealthy initial spike in disposable income. As consumers spent off this superficial wealth, prices soared and disposable income tumbled. Consequently, today, as inflation ravages the wallets of everyday Americans, disproportionately impacting low-income families, the personal savings rate has plunged to just half of what it was in early 2019 and is now rapidly approaching all-time lows. 

American citizens are being forced to spend larger portions of their income on basic necessities and mundane lifestyle items, leaving less–or no–room for economically stimulating investment or leisure. The great evils of government–not corporation–inflation are every day becoming increasingly apparent.

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Rising Interest Rates Are Revealing the True Damage Done by the Fed

06/16/2022Tho Bishop
Listen to the Audio Mises Wire version of this article.

On May 4, Jerome Powell dismissed the possibility of the Federal Reserve hiking the federal funds rate by three-quarters of a percent.

On June 15, he announced that America’s central bank was doing just that, a reminder that the Fed continues to give itself more power over the economy, even as it repeatedly demonstrates an inability to predict inflation, economic growth, or even its own policy.

Markets were already reacting to the move days in advance after a deliberate leak of the Fed’s decision to the Wall Street Journal this past weekend. The result is tens of millions of Americans watching their net worth collapse with stocks, cryptocurrencies, and other financial asset prices as investors pull capital away from investments and into cash and other safe harbors.

Of course, the demand for these investments that are now being devastated by rate hikes was itself a deliberate policy goal of the Federal Reserve. Low interest rates maintained by aggressive quantitative easing and other new Fed tools were designed to discourage Americans from saving in traditional banks and low-risk financial assets. The Fed subsidized risk, and risk is what we have.

While panic over America’s economic environment is starting to make its way into the pages of the corporate press, savvy Fed watchers have been warning about this self-made trap for years. On the Mises Wire, Austrian analysts like Daniel Lacalle, Thorsten Polleit, and Brendan Brown have warned about the damage a decade of monetary hedonism has done to the financial health of the global economy. The lingering question has been whether central banks' concern over price inflation would trigger the policy corrections necessary to pop what Lacalle has called "the bubble of everything." 

The Fed seems to be trying. We will see how other central bankers respond.

The fight against inflation should illuminate one of the most important, but often overlooked, parts of the Austrian understanding of business cycles. While a lot of the online conversation about Fed policy will often focus on the dollar's declining purchasing power or concerns about hyperinflationary environments due to central bank mismanagement, the more pressing insight is the true costs of the malinvestment that occurs in a low interest rate environment.

Artificial credit expansion means capital is invested in firms and industries that would not appear profitable without the intervention of central banks. One way we can see this manifested is in the form of zombie companies, which are firms whose operations are not profitable and that depend upon cheap debt to survive.

As Joshua Konstantinos noted on the Mises Wire in 2019:

Following the Great Recession, zombie companies became a worldwide phenomenon. Even with today’s very low interest rates; more and more companies are unable to pay the interest on their debts out of profits. According to the BIS, the share of zombie companies in the US doubled between 2007 and 2015, rising to around 10 percent of all public companies. And counterintuitively, as interest rates have fallen lower and lower the number of zombie companies has increased.

These numbers, of course, do not consider the financial frenzy that was created as a result of covid-related policies after the article was written.

An additional consequence of the Fed’s subsidization of risk in the financial system is damage done to important institutional investors. Pension funds and insurance companies, for example, have been forced to manage investment portfolios at a time when government bonds and other historically low-risk investments are yielding little. In such an environment, these institutions can either reduce payouts in the future or adjust their investments to higher-yield assets. If an aggressive increase in interest rates ends up taking down a large portion of these zombie companies, this could secondarily impact millions of Americans who never benefitted from the stock market.

It is precisely these deeper consequences to the busting of financial bubbles that inspired Ludwig von Mises to spend so much effort in trying to illustrate the consequences of central bank–fueled malinvestment. As he notes in Economic Policy:

Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness.

The question going forward is how truly dedicated the Fed is to its campaign against price inflation. The purpose of its severe move, the largest single move in forty years, is to demonstrate a willingness to act boldly in the future—the Powell Fed has enjoyed a reputation for being willing to bring out "a bazooka," nerd speak for engaging in aggressive monetary policy. This was also an act of political necessity: $5 gas and double-digit increases in food costs is the sort of kitchen table issue to get Americans very angry at politicians and their bankers.

Will those calculations change with Americans seeing their 401(k)s draining away? Data from the Atlanta Fed is now signaling an official recession in the coming months. Will Jerome Powell be willing to increase rates with those head winds?

Only time will tell.

What we can be confident about is that the damage the Federal Reserve has done to the economy is only now being exposed. Unfortunately, the institution responsible is as blind and powerful as it has ever been.

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At Least Private Police Would Have an Incentive to Act

06/15/2022John Kennedy

Following the tragic events of Uvalde Texas, the whole country saw a disgusting act of senseless killing, and the police waiting outside as it unfolded. This article has a purpose to discuss police ineffectiveness in situations where they’re expected to serve and protect, and how private police companies are superior to government funded police departments. 

Prices: Providing Incentives

Thomas Sowell wrote in “Basic Economics” (p.59) how prices lead people to take more risks as they have an incentive to make profit. He writes:

When a Spanish blockade in the sixteenth century tried to starve Spain’s rebellious Antwerp into surrender, the resulting high prices of food within Antwerp caused others to smuggle food into the city. However, Antwerp authorities decided to solve the high food prices by laws fixing the maximum price to be charged for given food.

These price controls may have lowered the cost of food artificially, but it then caused a shortage within the city, as the smugglers would not risk their lives and freedoms for a low price incentive.

 Humans naturally run on incentives, and if one takes risk or puts in time, labor or some other form of action, they will expect  a reward. This rewards can vary, but it is more often than not some form of currency that is accepted by society as the medium of exchange, such as money. However public entities do not give out bills to people who use their services, at least not directly, as citizens pay through state or federal taxes for public services. 

In fact, the official webpage of the Uvalde Office of Finance shows that the police budget from 2018-19 is just shy of $4.1 million out of the city’s budget of $24 million. However, Bloomberg News states that the Uvalde Police Department takes up 40 percent of the budget. 

Despite this, the impersonal funding of the police department through taxation was not enough incentive for the officers to take action, the department does not rely on upfront prices for its very existence as they will always get funded, even if they fail in times where it matters most.

 In Uvalde Texas, according to a CNN timeline, the shooter entered the building at 11:33 am, and only at 12:50 did the police enter the classroom with a key and kill the suspect. However, the police were also in the school much earlier, as the timeline states. “The officers entered the building more than an hour before the shooter was killed.” Some have claimed that since the shooter supposedly barricaded himself in a classroom, the standard procedures were different, but the official Uvalde PD active shooter manual says differently in this case. The manual states the priority of life is first of innocent civilians in the area and that the officers must either isolate, distract, or neutralize the attacker.

The manual explains on how to handle barricaded suspects, “If an officer forces an attacker into a room or area where they are isolated, cannot escape, and can do no more harm to students, staff, or visitors, the officer is not obligated to enter the room to deal with the attacker.” Ignoring the obvious lack of obligation to neutralize a shooter, it was found out that the classroom the shooter was locked inside of still had at least one child in it, which meant the officer was still obligated to engage the shooter.

 Just as smugglers entered the blockaded Antwerp, private police would have more incentive to enter the school and stop the shooter, not only because of prices and morality, but because of competition.

Competition and Incentives

Competition is one of the most important aspects of a free market, as it provides an incentive for a business to provide the best service or product at the best price and quality. Economist Ludwig Von Mises noted on competition “The free market is not a struggle to defend one's own life against predators but a competition over who can be the best cooperator, over who can benefit the most people.” The current system of state or public funded policing, creates a monopoly over not only law enforcement, but of safety as well. 

The citizens of Uvalde have no other option other than the now loathed state-run Uvalde police department. At least if there were competing police companies and a particular company refused to help those children in the school, the Uvalde residents could have the freedom of choice and go to that company's competitors and leave the other underperforming business out of business.

A good example involves Cornelius Vanderbilt's steamboat company. Burton Folsom explains the story of Vanderbilts steamboat company in his book, “The Myth of The Robber Barons.” During Vanderbilts time (1806-1815) Robert Fulton owned a government regulated and subsidized steamboat company that carried its passengers up and down the Hudson River. 

However, travel was expensive and competing with this government monopoly was illegal, but Vanderbilt did it anyway, he would make his own steamboat company and carry passengers for a low price. Eventually, the price for Vanderbilt's steamboat would be $0, as he instead opted to sell products on board the ship to make profit. 

Truly an ingenious idea that benefited everyone!

 This is the point of a free market, competing companies trying to deliver the best product to its customers. But of course, people will have questions, what if the police company forms a cartel and raises prices for consumers and businesses? Economist Murray Rothbard talked about voluntary cartels businesses formed, and looking at the facts many of these cartels after six to nine months started to fall apart. Rothbard talks about the biggest enemy to cartels, undercutting, Rothbard notes railroad cartels “These guys are restricting production, rates are up, let me start undercutting them a little bit and I can pick up all that business.”

 Rothbard continues on how this will be done in secrecy because once competitors know you broke the cartel price, the advantage will be lost and they will start doing the same thing and the cartel breaks down in hatred. In the end, the only cartels that are able to last, are government cartels like the police department.

Conclusion

Through prices and competition, private police will have an actual incentive to provide you the service of safety and upholding rights. If news gets out of brutality against a suspect or violation of rights of a suspect by a private company, consumers will be more willing to go with their competitor. While some may complain about prices being paid, prices are meant to be prohibitive so that you will think before you buy, and at least this way you have a freedom to choose and when you do call the police, they’ll be there faster since their company's existence relies on you, the customer. 

Remember that state-provided police are not free either. In the fiscal year 2021, the U.S. Government spent $71.9 billion on policing and prisons and in 2019 that number was $205 billion. How can we spend this much money, of taxpayer money, on an organization that will not stop a school shooter? We do not even have the freedom to choose where our tax money goes, let alone have competing police companies, this is the true change needed in the problem of policing.

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