Power & Market
In his noneconomic magnum opus, The Ethics of Liberty (henceforth TEoL), Murray Rothbard outlined what he considered to be the fullest and most complete ethical system of freedom and libertarian natural law. Additionally—at least up until Hans-Hermann Hoppe introduced his argumentation ethics—Rothbard also considered this book to contain the strongest available ethical case for libertarian self-ownership, property, and the nonaggression principle. The most famous and elaborate component of Rothbard’s moral case is his natural law system, which was a renovation of older Scholastic and Thomistic natural law and took up the majority of TEoL’s early chapters. I do not, however, consider his natural law to be Rothbard’s strongest case for liberty, even though he seemed to think it was.
Natural law is very interesting and enlightening, but Rothbard’s real strongest argument is one which I rarely see mentioned (besides Kuznicki’s interesting summary) and which I call the Rothbardian trilemma. Rothbard lays it out almost offhand, to the side of what he seems to think is his primary argument, in chapter 8, “Interpersonal Relations: Ownership and Aggression.” Here is how he introduces it:
Here there are two alternatives: either we may lay down a rule that each man should be permitted (i.e., have the right to) the full ownership of his own body, or we may rule that he may not have such complete ownership. If he does, then we have the libertarian natural law for a free society as treated above. But if he does not, if each man is not entitled to full and 100 percent self-ownership, then what does this imply? It implies either one of two conditions: (1) the "communist" one of Universal and Equal Other-ownership, or (2) Partial Ownership of One Group by Another—a system of rule by one class over another. These are the only logical alternatives to a state of 100 percent self-ownership for all.
Essentially, the argument goes like this: someone must control our bodies, because otherwise we are left in a contradictory state where we can do nothing with ourselves, not even commit suicide, because we would be controlling (or, in the case of suicide, damaging) property that we do not own. Now, if someone must control our bodies, there are three different ways we can arrange that right of control—which is what we call right of ownership—of bodies:
- Everyone owns (“the libertarian natural law for a free society”)
- Everyone owns everyone else equally (“Universal and Equal Other-ownership,” as Rothbard calls it)
- Some (group of) people own others (“Partial Ownership of One Group by Another”)
Only some of these are tenable, as we shall see.
Rothbard next begins to knock down alternatives (2) and (3)—either showing them to be untenable or unethical. First, he deals with (3):
here, one person or group of persons, G, are entitled to own not only themselves but also the remainder of society, R. But, apart from many other problems and difficulties with this kind of system, we cannot here have a universal or natural-law ethic for the human race. We can only have a partial and arbitrary ethic, similar to the view that Hohenzollerns are by nature entitled to rule over non-Hohenzollerns.
Essentially, option (3) fails the universalizability test: if you would choose this option, the burden of proof falls on you to show why some should rule. Ask yourself, what is it about a king or an aristocracy that gives them the right to rule their subjects? The the divine right of kings previously supplied just that sort of justification—yet even that justification fails, because it is an impossible task. Although there are many differences between rulers and subjects, there are none which are ethically relevant.
Next, Rothbard takes (2) out of the running. First, he points out that “if there are more than a very few people in the society, this alternative must break down and reduce to…partial rule by some over others.” This is because, he says, “it is physically impossible for everyone to keep continual tabs on everyone else, and thereby to exercise his equal share of partial ownership over every other man.” It is impossible, in other words, for every man to get permission from every other man before he does what he wants to do: we would all die before that was possible. Moreover, as Rothbard says in the next paragraph, “it is surely absurd to hold that no man is entitled to own himself, and yet to hold that each of these very men is entitled to own a part of all other men!” For, how could they vote on what the other people should do, without exercising unilateral control over their own decision and mouths? If they did not exercise such unilateral control, there would first have to be a vote on how everyone could vote—ad infinitum! In this way, we can see that universal and equal other-ownership is already an impossible situation.
Now, it is possible that such control rights, which Rothbard would call ownership, could be exercised on a “retroactive” basis: essentially, everyone is free to exercise unilateral control over themselves until there are enough votes telling them to do something else to outweigh their partial share in their own bodies—two votes, in the case of equal other-ownership. This would solve the problem of infinite voting regress, but it would likely result in first-come-first-served aristocracy, where whoever can jet around the fastest (along with a buddy) and “command” the most people would own all of those people, including how those people vote. Additionally, this assumes that one needs only a majority of those present, and not a unanimity, to make a decision—an assumption which is in fact contrary to universal equal ownership. All this really devolves back to (3), since those who aren’t around currently don’t get to exercise ownership rights and become slaves of the person with the bigger army unless they bring an army of equal size. Also, this arrangement, where everyone has de facto control over themselves, but a different kind of control over others, which requires not their permission before their “property” is used, but their assertion of a contrary rule, is a double standard which would actually have to be voted for by an equal other-owning collective like the one described above, therefore not actually escaping infinite regress.
There are a few other options which Kuznicki mentions in his article which I would like to address briefly as well, since the natural objection to the Rothbardian trilemma is to attempt to break out of it. First, he muses that “in the real world, people may acquire use rights not only through ownership, but also through lease, rent, borrowing, or other forms of agreement with the owner….it is not necessarily clear that all types of use rights must stem from someone’s ownership somewhere.” My challenge to this, then, is to find just such a moral claim which does not simply regress to option (3) as the use-until-contradiction option I covered above does. This is a claim which would have to be substantiated, because as far as I am aware, partial ownership, no ownership, and whole ownership cover the entire breadth of possible arrangements of control rights. After mentioning briefly a possible theological turn for this, Kuznicki moves on to his final point on the subject: “if we have use rights, but not ownership, many of the same assertions Rothbard later makes will still be valid.” Here I would ask, What is the difference between having use, or control, rights, and having ownership? If I have a right to control every aspect of something, that is identical to full ownership: if someone else tries to control it, that means that for a time I do not have control of it. If I have only partial control rights over something, then I have partial ownership, which is already covered in the trilemma. Hence, we return to option (1): libertarian self-ownership, which reveals itself to be the only option which is both desirable and logically possible.
In conclusion, I find this to be a much stronger case for libertarian self-ownership than any other that I am aware of. It requires, moreover, very little buildup or framework, and makes almost no assumptions, making it ideal for those not already willing to consider libertarianism. In light of this, I am very surprised to find that it is not mentioned all that often. I think that, with some extending and defending, it could even be stronger than argumentation ethics.
Listen to the Audio Mises Wire version of this article.
Imagine if a member of the Federal Reserve Board of Governors said the following:
When governments manipulate exchange rates to affect currency markets, they undermine the honest efforts of countries that wish to compete fairly in the global marketplace. Supply and demand are distorted by artificial prices conveyed through contrived exchange rates.
Or something honest like:
The Fed should focus on stable money as a key factor in economic performance. Given that central banks today are the world’s biggest currency manipulators, it’s imperative that the next chairman prioritize the integrity of the dollar.
And what if they showed an understanding of both history and sound money principles with something intelligent:
For all the talk of a “rules-based” system for international trade, there are no rules when it comes to ensuring a level monetary playing field. The classical gold standard established an international benchmark for currency values, consistent with free-trade principles.
While she’s not a governor yet, the quotes were from Trump’s appointee Judy Shelton, approved this week by the Senate banking committee on party lines, at a vote of 13–12. To be nominated to the board of directors, Ms. Shelton will now be put forward to be voted on by the full senate, fifty-three of the hundred being Republicans.
Yet below we can see everything wrong with the mainstream media (MSM), mainstream economists, and American politics starting with the New York Times article entitled "God Help Us if Judy Shelton Joins the Fed." Former counselor to the Treasury secretary during the Obama administration Steven Rattner began with:
Trump’s latest unqualified nominee to the Federal Reserve Board must be rejected.
The defaming article shows Mr. Rattner has no care nor understanding of economics. According to him, Ms. Shelton is known for taking “long-discredited positions in the monetary system,” referring to the gold standard, as he claims it was the “culprit in deepening the Great Depression.” Clearly he is no fan of (or perhaps isn’t educated enough to have heard of) Mises or Rothbard.
Mr. Rattner, fueled by ignorance, continues with what some may describe as laudable on Ms. Shelton’s part:
Among other heretical stances, she has supported the abolition of the Federal Reserve itself, putting her in a position to undermine the very institution she is being nominated to serve.
A similar tone was found in the National Review, a magazine which characterizes itself using the highly nebulous and ill-defined “modern conservative movement.” Going back several months, the “controversy” surrounding Judy Shelton was shared in an oxymoronic write-up called: "The Wrong Kind of 'Intellectual Diversity' at the Fed." It is nothing more than a rant showing that the senior editor also knows little about history or economics but, being in a position to publish, does so with a vociferous opinion. He begins with the usual appeal to popularity:
First, she has been a single-minded advocate of a policy that most economists rightly reject: the revival of the gold standard.
What is popular is not always true, especially regarding economics. The article cites quotes from 2009 in the Wall Street Journal in an attempt to discredit Shelton by showing she has not always been consistent in her stances over the past decade. The rant implies that all other members of the Fed and economists have.
Unfortunately, some people claim to like diversity, but not when it’s different from their own bias. The senior editor who wrote the hit piece can be found on Twitter.
Unlike the New York Times and National Review, surprising as it may seem, CNBC’s position was more neutral when discussing the Senate hearing:
She faced persistent and at-times hostile questions about her support for the gold standard, her beliefs on whether bank deposits should be insured and whether the Fed should be independent of political influences.
Last but not least, the Wall Street Journal wrote it best, much to the chagrin of its rivals:
the news write-ups inevitably described her with adjectives like “controversial.” She should take it as a badge of honor, given how she would provide needed intellectual diversity at the Fed.
Only in a world this backward, where in a supposedly free country socialism is considered good and capitalism bad, could Shelton receive so much scorn. To think that one out of seven members of the board could have ideas other than inflationist dogma but would be shunned for speaking up says a lot about the society in which we are living. Perhaps the real reason is that, if appointed, Judy Shelton could be in line for the position of Federal Reserve chair?
Ironically enough, as long Congress stays partisan, we may see Shelton in one of the most powerful central banking positions in the world. It won’t “End the Fed” overnight, but maybe it’s one step closer!
With the Fed blackout until next week’s committee meeting, former Fed chairs have been back in the limelight, pushing an agenda not necessarily in the best interest of “We the People.” As explained in an article featured in the New Yorker:
Although neither of them has appeared before a congressional committee since leaving the Fed, they have both emerged in recent months as vocal supporters of using monetary and fiscal policy aggressively to support the stricken economy.
This is no surprise considering that Ben Bernanke championed the “whatever it takes” attitude during the Great Recession, authoring one of the most proinflationist/anticapitalist essays of all time: Deflation – Making Sure “It” Doesn’t Happen Here. As well as calling for money creation, Bernanke and Janet Yellen voiced concerns that the White House’s upcoming spending bill shouldn’t be limited to a trillion dollars, harkening back to their glory days as chair, with the idea that it’s central bankers, not the free market, who bring about ultimate economic prosperity. As reported:
Yellen said it was hard to tell precisely how much financial support might be needed, so it would be unwise to impose a spending cap. Bernanke said, “Whatever it takes is probably what we need to be thinking now.”
The duo's proclamations are not the first during this crisis. Last month they headlined a letter signed by over 150 economists imploring Congress to:
immediately pass a “multifaceted relief bill of a magnitude commensurate with the challenges our economy faces.”
In the letter they argue that more spending is needed in order to save the economy. They even acknowledge the unprecedented levels of Congress and Federal Reserve support but insist that even more needs to be done! Strikingly, but not surprisingly given the deception and fear tactics required when asking for trillions of dollars, they warn:
Evidence from the Great Recession indicates that a prolonged economic downturn will seriously damage the economic opportunities and wealth accumulation of all Americans, but especially of families of color.
The letter was posted via the Washington Center for Equitable Growth, founded by political insider John Podesta; it’s a nonprofit organization which claims to be “dedicated to advancing evidence-backed ideas and policies that promote strong, stable, and broad-based economic growth.” It implies that the government and Fed support is for the people, especially the disenfranchised. According to the “experts,” intervention in the free market is necessary in order to avoid “prolonged suffering and stunted economic growth.” The option always seems to be that unless some receive bailout money, the poor will suffer. Of course, often the recipients of bailout money are those other than “the poor.”
Under the guise of economic know-how, these prominent people, aided by the mainstream media, convince the world that increasing the money supply to bail some out at the expense of others is a good thing. Unmentioned are the national debt, dollar destruction, and impossible task of allocating new money to those who supposedly “need” it.
That there is no voice testifying before Congress explaining the Austrian business cycle or blaming central bankers for creating the crisis we are in currently is quite concerning. No, “The people” only see two former Fed chairs testifying before Congress, demanding more spending, backed by economists from the most distinguished universities and colleges across the nation, like Harvard, Brown, Stanford, and Berkeley. To the masses, the experts know what’s best and it, of course, seems reasonable to give money to those most in need. Unfortunately, these ideas are not based on sound economic principles, and the disenfranchised groups as well as those on Main Street most likely will not benefit from these recommendations.
Isn’t it fitting that the ones who bring us into crisis are always the ones to bring us out? The Fed’s playbook hasn’t changed much in the last decade, other than in terms of the scope and scale of money being created. Few seem concerned with the anticapitalist policies that got us to this point, nor do they seem capable of understanding that while they claim to fight for equality, central bankers' interventionism and penchant for the printing press bring about an outcome diametrically opposed to the causes they claim to champion.
Oftentimes, people unfamiliar with the Austrian school tend to bundle it with political anarchism. There are—I believe—different possible explanations for that, but the most prominent ones seem to me the following two. First, it’s true that some Austrians can in effect be considered political anarchists as well. Second, the Austrian school is not only a school of thought about economics, but also (at least) about epistemology and political philosophy—i.e., it’s concerned with issues such as the relationship between individuals and states.
However, all Austrians share a common denominator: they all accept the teachings of Human Action, Mises’s magnum opus. Hence, in order to determine whether Austrianism does necessarily imply political anarchism as well, it might be sensible to scrutinize Human Action: What does it say about the role of state and government in society and how far they can go in subjecting individuals?
Is Unfettered Individual Freedom a Natural Right?
Many anarchists ground their anarchism on the concept of “natural law” or “natural rights”—namely, the idea that something as “natural law” does really exist and that it mandates the inalienability of individual freedom to the government or the sovereign.
However, such a stance entails two logical problems. First, one needs to postulate the existence of enforceable rights which do not coincide with the ones established by law. Second, one needs to compellingly conclude that such rights are objectively in favor of freedom rather than some other ideal—say, equality, tribalism, nationalism, etc.
On the first topic Mises’s answer is straightforward enough: justice exists only insofar as it is established by law. As a matter of fact, he writes,
The notion of justice can logically only be resorted to de lege lata [i.e., the law as it exists]. It makes sense only when approving or disapproving concrete conduct from the point of view of the valid laws of the country….There is no such thing as an absolute notion of justice not referring to a definite system of social organization. (Human Action,  1998, p. 717, emphasis added)
Moreover, Mises does not only agree on ultimately resorting to laws in order to asses justice, but he goes even further—embracing a viewpoint about freedom and, more generally, human cooperation, rooted in a contractualistic philosophy. In fact, Mises writes,
It is therefore nonsense to rant about an alleged “natural” and “inborn” freedom which people are supposed to have enjoyed in the ages preceding the emergence of social bonds. Man was not created free; what freedom he may possess has been given to him by society….Liberty and freedom are the conditions of man within a contractual society. (Human Action,  1998, p. 280, emphasis added)
On the second topic Mises is manifestly skeptical when it comes to hypothesizing that we can find, or prove, any kind of objectivity about “natural laws”—or about “natural morals” that we can derive cogent “natural laws” from. In fact, he writes that
There is, however, no such thing as natural law and a perennial standard of what is just and what is unjust. Nature is alien to the idea of right and wrong. “Thou shalt not kill” is certainly not part of natural law….The notion of right and wrong is a human device. (Human Action,  1998, p. 716, emphasis added)
Furthermore, Mises goes as far as stating that, were a “natural law” to really exist, it would be sensible to think of it as a ruthless law of abuse and aggression—in accordance with which no social cooperation nor division of labor would be feasible. As we can read,
nature does not generate peace and good will. The characteristic mark of the “state of nature” is irreconcilable conflict. Each specimen is the rival of all other specimens. The means of subsistence are scarce and do not grant survival to all. The conflicts can never disappear. (Human Action,  1998, p. 669, emphasis added)
Lastly, Mises clearly lays out his skepticism about “natural rights” as a useful concept when it comes to defending property rights—a fallacious argument that can be refuted, on a priori grounds, by those claiming that “equality” rather than “property” is what “nature” imposes upon human beings. In Mises’s own words,
It is useless to stand upon an alleged “natural” right of individuals to own property if other people assert that the foremost “natural” right is that of income equality. Such disputes can never be settled. (Human Action,  1998, p. 281)
The Right Place for Government
Once the “natural law” argument in favor of anarchism is refuted, we are left with an open question: Is Government useful to human beings? For Mises, the answer is “yes, it is”—but with a few caveats.
Without entering into the details about how detrimental government interventionism is for the economy (part six of Human Action is entirely devoted to it, and Austrians are well aware of the damages caused by currency manipulation, trade barriers, legal monopolies, labor unions, etc.), we cannot deny that Mises conceived of government as something that, taken with a grain of salt, could foster human cooperation and prosperity.
For instance, he writes about taxes and government that
As far as the government fulfills its social functions and the taxes do not exceed the amount required for securing the smooth operation of the government apparatus, they are necessary costs and repay themselves. (Human Action,  1998, p. 738)
Lastly, Mises’s distrust of natural spontaneous social order and anarchism is clearly set out at the very beginning of part two of Human Action, where we can read:
An anarchistic society would be exposed to the mercy of every individual. Society cannot exist if the majority is not ready to hinder, by the application or threat of violent action, minorities from destroying the social order. This power is vested in the state or government. (Human Action,  1998, p. 149, emphasis added)
Therefore, we can conclude that Mises accepts indeed a role for governmental intervention, that is, the enactment and the enforcement of the rule of law—whereby “naturally” weak members of society are protected against violence and abuse on the part of stronger ones.
Contrarily to what is often claimed, one can consider him/herself an Austrian disciple even without feeling necessarily compelled to be bundled with political anarchism: Austrian sound teachings about economics do not necessarily imply that no room whatsoever is left for governmental intervention.
Nonetheless, the government's role should be kept to the bare minimum, and its attempts to meddle with resource allocation—via fractional reserve banking, fiat money, legal monopolies, trade barriers, etc.—must be forcefully and explicitly opposed.
Dear Portlandia progressives: a federal government big enough to take care of you is a federal government big enough to "take care of you."
Scary unidentifiable police, federal black sites, and procedureless snatching of individuals from the streets are the wholly predictable and natural consequences of the very policies you advocated for decades. Why do you imagine a big government with lots of power will restrict itself to the cozy "social issues" and economic takings you support? Government can seize the means of production, but not seize you? You wanted everything run from DC, and you got what you wanted. Plus you certainly would be every bit as outraged if federal agents concerned about the undermining of America surreptitiously snatched up a few "white supremacists," right?
Progressives of all parties have cheered the relentless centralization of state matters—and rejection of the Tenth Amendment—for nearly 150 years. The shaky and infirm Incorporation Doctrine federalized the Bill of Rights, the Supreme Court federalized social and economic issues, and the the alphabet soup of federal agencies created by progressive administrations federalized the regulatory state. Foreign policy was ripped away from Congress and commandeered by bureaucratic Deep State actors at the DOD, CIA, NSA, and the State Department. Thousands of new federal crimes were created by statute. These statutes in turn created a vast federal police state, one heavily influenced and provisioned by the residual weaponry and machinery of our overseas wars.
So now you wonder why the Feds are sent in to quell an uprising in Portland?
Who wanted to make the world safe for democracy? Remember Woodrow Wilson, suddenly a bad guy because of racism? At least Truman had the honesty to admit regrets about creating the CIA. Who wanted federal control over the retrograde Southern states? Who dismissed the Ninth and Tenth Amendments as relics? Who derided states' rights and nullification as legal cover for bigotry? And for the millionth time, "states' rights" does not mean states have "rights" relative to their citizens; it refers to their retained powers in a federal system—so enough with the dishonest smears.
Who shrugged at Waco and Guantanamo Bay, for that matter? Or when Obama signed the NDAA?
At this writing, federal agents operating in the City of Roses appear to be from the Department of Homeland Security (sic). Here is what Ron Paul, a true man of peace yet despised by progressives, had to say back in 2002, shortly after the DHS was created with overwhelming support in Congress:
The Homeland Security department, like all federal agencies, will increase in size exponentially over the coming decades. Its budget, number of employees, and the scope of its mission will EXPAND. Congress has no idea what it will have created twenty or fifty years hence, when less popular presidents have the full power of a domestic spying agency at their disposal. The frightening details of the Homeland Security bill, which authorizes an unprecedented level of warrantless spying on American citizens, are still emerging. Those who still care about the Bill of Rights, particularly the 4th amendment, have every reason to be alarmed. But the process by which Congress created the bill is every bit as reprehensible as its contents. Of course the Homeland Security bill did receive some opposition from the President’s critics. Yet did they attack the legislation because it threatens to debase the 4th amendment and create an Orwellian surveillance society? Did they attack it because it will chill political dissent or expand the drug war? No, they attacked it on the grounds that it failed to secure enough high-paying federal union jobs, thus angering one of Washington’s most powerful special interest groups. Ultimately, however, even the most prominent critics voted for the bill.
Similarly, Dr. Paul was scorned and attacked by progressives of all parties in the early 2000s for labeling the Bush/Ashcroft/Yoo junta as a "police state." He was dismissed for opposing TSA at the airport, for opposing FISA warrants, for his Fourth Amendment absolutism, and especially for warning how American forays in the Middle East would come home in a multitude of ways.
Constitutionally, there are only three federal crimes: treason, piracy, and counterfeiting. No standing federal police agencies or apparatus are required to enforce these; in fact the latter appears to be the express policy of our central bank. There should not be federal agents, overt or covert, in Portland. The riots taking place there are criminal matters for local authorities and local authorities alone. If residents and local politicians prefer to give the mob freedom to run amok over both public (taxpayer) and private property, while also threatening the physical safety of ordinary citizens, Uncle Sam has nothing to say about it. But the same people who demanded endless growth in the federal police and regulatory state ought to be more circumspect today. A cynic might call them hypocrites.
Inflation, spending, and debt! Apparently, increasing these are the only way to restore normal market functions. Last week, in a speech called Navigating Monetary Policy through the Fog of COVID, Governor Lael Brainard, while explaining how the Fed aims to restore the flow of credit to households and businesses, extolled the virtues of inflationism as a formal policy.
Inflation has receded further below its 2 percent objective….Nonetheless, with inflation coming in below its 2 percent objective for many years, the risk that inflation expectations could drift lower complicates the task of monetary policy.
When central bankers discuss inflation, they speak as if they actively manage it through their intervention. However, another interpretation is: their lives are better when the cost of living is higher while our lives become more unaffordable. If the aim is 2 percent inflation, then by definition anything below 2 percent must be considered too low, therefore, not preferable. Of course, what seems never to be asked is, If 2 percent is good, why isn’t 4 percent twice as good?
Moving on to spending, Brainard noted that various indicators tracked by the Fed suggest:
household spending increased quickly in response to stimulus payments and expanded unemployment insurance benefits.
Much like the cost of living, which apparently should never go down, so too must households continually spend to keep the economy afloat. Just, how much money households should spend is uncertain for those not privy to the Fed’s data. What is clear, due to COVID-19, we still haven’t spent enough.
More revealing, is the link between money creation and spending increases:
Household spending stepped up in mid-April, coinciding with the first disbursement of stimulus payments to households and a ramp-up in the payout of unemployment benefits, and showed the most pronounced increases in the states that received more benefits.
Data suggests more debt for the nation means more spending for Main Street. On the subject of debt, a heightened risk of defaults has been linked to the crisis; yet there seems to have been a debt crisis even before COVID:
As the Federal Reserve Board's May Financial Stability Report highlighted, the nonfinancial business sector started the year with historically elevated levels of debt.
For many years, few policymakers have shown concern that, even in the “boom” before COVID, debt levels were on the rise. But why should the Fed worry considering that the solution to bankruptcy is simple:
It remains vitally important to make our emergency credit facilities as broadly accessible as we can in order to avoid the costly insolvencies of otherwise viable employers and the associated hardship from permanent layoffs.
Insolvencies can be avoided by taking on more debt? Perhaps it is true in the short term, but what about the long-term consequences?
If we combine a 2 percent inflation, perpetual increase in debt-fueled spending, and an overall increase in debt levels, it won’t take long for the USA to become distinctly unrecognizable. Asset prices such as real estate, stocks, and bonds, which remain outside the Fed’s purview, will be exponentially more unaffordable for the masses. As for the national debt, it will continue following the path of the money supply and the Fed’s balance sheet. In effect, everything must only go up! This becomes both sad and ironic, since a perpetual increase in prices and debt inevitably leads to disaster.
“We are in a good place at the moment,” the head of the European Central Bank (ECB) told reporters on Thursday. And so concluded another ECB rate decision, to no one’s surprise, as quoted in the Wall Street Journal:
The ECB said in a statement Thursday that it would continue to purchase €1.35 trillion ($1.54 trillion) of government and corporate debt through June 2021 under its Pandemic Emergency Purchase Program, or PEPP. The bank also left its key interest rate unchanged at minus 0.5%.
If the central bank buying around €150 billion of government and corporate debt a month is a “good place,” may we hope to never see what’s considered a bad place. In addition, we are living in a world of upside-down economics where negative interest rates exist, meaning that some entities may actually get paid to borrow money. Like the Wile E. Coyote cartoon character, who can defy the law of gravity as long as he doesn’t look down, so too can the central bankers defy economic laws so long as the money supply goes up and interest rates stay down.
We’ve become complacent with “monetary policy,” which really just amounts to nothing more than inflationism. We are told by planners that it is okay to conjure up new money and give it to governments and the wealthiest corporations in order to avoid an unfathomable crisis. The fact that in a year from now trillions upon trillions of dollars will be created by central banks of the world and then given directly to select members of society doesn’t resonate with the masses; if they understood what the government has done to their money, alternatives such as gold, silver, and cryptocurrencies would be held by the majority of the population.
In North America, anticapitalist mentality remains stronger than ever. This week the newly appointed governor of the Bank of Canada, Tiff Macklem, presented his first policy decision:
The Bank is also continuing its quantitative easing (QE) program, with large-scale asset purchases of at least $5 billion per week of Government of Canada bonds.
At least in the USA, the Fed has the courtesy of not calling their multitrillion dollar asset programs “quantitative easing,” whereas their neighbors to the north have embraced central bank bond buying as if it were 2009 all over again. In fact, it was the first time since the beginning of this year that the bank started using the term QE. And while $5 billion a week might seem miniscule compared to the Fed’s $5 to $300 billion a week we’ve seen lately, it could be a sign Canada is not really in a “good place” at the moment (unless central bank bond buying is good).
But maybe Canada is in a great place! At least the bank’s overnight rate stayed at 0.25 percent, which is still better than a negative rate. The press release also noted:
The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved.
How long will it take until the target is met? Perhaps with enough QE they’ll get there one day!
As for the Fed, they are in the usual media blackout period preceding the next Federal Open Market Committee (FOMC) meeting, the period being from July 18–30. In what may be one of the last statements until then, John C. Williams, vice chairman of the FOMC, gave a self-congratulatory speech on the success of the Fed and their response to the pandemic. Citing both the success and necessity of the Fed from 1913 until now, he concluded:
the actions we have undertaken harken back to why the Federal Reserve was created in the first place. That is, to do what only a central bank can do: to keep credit flowing when fear and uncertainty take hold, and in that way to foster a strong economy with maximum employment and stable prices.
Per the Chairman, all is well. The struggle toward the dual mandate might soon be met, and a liquidity crisis has been averted. According to Central Bankers, we are in a “good place at the moment.”
Listen to the Audio Mises Wire version of this article.
New tax revenue data released by the Treasury Department on Monday shows that tax revenue further worsened in June (compared year over year) from May's already cratering total.
On the plus side, neither May nor June has returned to April's historic plunge in revenue.
As shown in June's Monthly Treasury Statement, June's total tax receipts were $240.8 billion. That was down 27.8 percent year over year, a decline from May's year-over-year drop of 25 percent. This was nonetheless less of a plunge than April's multidecade low in revenue growth, which hit –54.8 percent.
Source: US Treasury.
In spite of declining revenue, federal spending continues at a record-breaking pace. Federal outlays surged in June to $1.1 trillion, a remarkable sum for a single month of spending. In recent years, federal spending for an entire year has been between $4 trillion and $4.5 trillion.
With declining tax revenues and soaring spending, the deficit reached new highs in June as well. June's budget deficit hit $864 billion, a new high. It is now likely that the annual budget deficit will easily top $3 trillion, which will be well above any previous deficits.
The annual deficit reached "only" $1.4 trillion in the wake of the 2008 financial crisis. This moderated over the next eight years, but after years of runaway spending during the Trump administration, the annual deficit again reached $1 trillion in 2019. This was a remarkable feat for a nonrecessionary period, and I warned at the time that this did not bode well for any coming period of economic turbulence. That period has now arrived, and not surprisingly, there appears to be no end in sight to the mounting deficits.
Unemployment Numbers Climb Again
Hopes that the economy might soon roar back and bring some relief from skyrocketing deficits remain unfounded for now.
Today's new data on initial unemployment claims brought more bad news, as more than 1 million workers filed for unemployment benefits for the seventeenth week in a row. For the week ending July 11, initial unemployment claims totaled 1.3 million, a slight decrease from the 1.31 million workers who filed for new benefits the week prior. That's in seasonally adjusted numbers. In unadjusted numbers, new claims actually increased from the previous week, rising from 1.4 million the week of July 4 to 1.5 million last week.
Since March, 51 million American workers have filed for unemployment. As of the week of July 4, 17.3 million continue to file for claims.
Moreover, June's tax revenue suggests that worker income has plunged with employment.
Will earnings and jobs and tax revenue come roaring back in July? This is certainly not a given. After all, many states and jurisdictions are now reimplementing business closures, shutdowns, and other measures which will surely eat away at both jobs and tax revenue. As with the first round of business closures, retail sales and food services are likely to be most immediately impacted.
But underneath those industries are a wide variety of support industries, from janitorial to bookkeeping to commercial real estate, all of which will affect both blue-collar and white-collar hiring.
Tax Hikes on the Horizon?
As earnings and retail sales plunge, the greatest danger to economic recovery lies in the decline of state and local taxes. The threat does not lie with the tax declines themselves, but with the expected policy reaction. As school districts, city governments, and state legislatures face immense shortfalls in revenue, many are now increasingly talking about large tax increases to fill the budget hole. This will be crippling for businesses seeking to come back from the current round of business closures and the collapse in consumer demand for many services and products. Tax increases will cripple the ability of entrepreneurs to shift resources to more in-demand industries and start up new businesses where old ones fail.
Facing uncertainty about both tax increases and the threat of ongoing mandated business closures, many business will wait as long as possible to commit to new staff hires.
When looking at comparisons of COVID-19 mortality rates between countries, or between US states, many casual observers in social media and publications' comment sections are often quick to point to population density as the overwhelming and deciding factor in determining overall infection.
This is often simply assumed to be self-evident. But when we look at differences in COVID-19 deaths—say, differences between Sweden and the UK—this is not really as obvious as many people seem to assume.
In many cases, the "evidence" provided relies far too much on aggregation, and in other cases, the assumption that greater density leads to greater deaths ignores the fact that denser areas often bring with them mitigating factors—such as greater access to healthcare institutions—that may lead to lower mortality rates in them, even if infection rates are higher.
The Uselessness of Average Density Rates
The most lazy approach to making pronouncements on the effects of density often relies on simply calculating population densities for entire countries. So, if we're comparing Sweden with the UK, we merely have to look at density—720 pop./sq. mi. in the UK, and 59 pop./sq. mi. in Sweden—to conclude "Voilà! This is why the UK has a much higher number of COVID-19 deaths per capita."
More astute readers will see the problem here immediately. This assumption only works if population is more or less distributed evenly across a jurisdiction. In practice, however, many countries are characterized by a few small dense areas surrounded by much larger areas with very low population density.
And how big are these urban areas? They constitute 8 percent of the land in the UK and 1.3 percent of the land in Sweden.
We find similar issues in the United States. Many of the states that are often assumed to be "rural" in nature are often nothing of the sort. In Colorado, for instance, 86 percent of the population lives in "urban areas." In other words, very little of the population is rural. Most of the state is unoccupied land.
But even when we do this, we're left with too much aggregation. Not all urban areas are equally dense. Large variations remain here as well. Some urban areas could have sizable districts with single-family houses. Other areas could be large apartment blocs piled on top of each other. Making useful comparisons would require a lot more work than simply looking at a country's average population density.
Does Research Show More Death from Higher Density?
Fortunately, some researchers have attempted to drill down deeper in order to examine the relationship between infectious diseases and population density.
But even when these variations are accounted for we're still not left with conclusive evidence that population density produces more mortality from infectious diseases.
In a June 2020 study in the Journal of the American Planning Association on COVID-19 fatality, the authors conclude:
counties with higher densities have significantly lower virus-related mortality rates than do counties with lower densities….we find no evidence that sprawling areas are more immune to the pandemic or that sprawling areas experience lower death rates. Indeed, we find that pandemics are deadlier in low-density areas that have less access to quality health care.
This is counterintuitive in many ways, of course. It certainly stands to reason that that more contacts among more people would lead to infection. But more infection doesn't necessarily lead to more death. After all, low-density areas are often relatively poor, or at least no better off economically than the urban core in terms of income. In terms of amenities like hospitals, however, urban core areas have more access than rural areas of similar income levels.
Similarly, Richard Florida, writing in Bloomberg's CityLab found that while some dense areas like New York City were indeed grimly impacted by high rates of mortality, some far less dense areas, such as Albany, Georgia were heavily affected in April were as well. Florida continues:
As to the question of density itself: [Jed] Kolko’s analysis finds density to be significantly associated with Covid-19 deaths across U.S. counties. But density is not the only factor at play. His analysis also finds that Covid-19 death rates per capita are higher in counties with older populations and larger shares of minorities, and colder, wetter climates. It’s important to remember that this analysis only looks at the U.S., and in other parts of the world, denser cities have had more success controlling the spread.
But even in some cases where modern healthcare was not available, there is conflicting evidence on how population density impacts mortality.
This is why Ruiqi Li et al. write in Physica A: Statistical Mechanics and Its Applications that "Investigations of possible links between population density and the propagation and magnitude of epidemics have so far proved inconclusive." The authors refer, for example, to a study on the 1918 influenza epidemic by Gerardo Chowell et al. which states, "we did not find any obvious association between death rates and measures of population density or residential crowding."
This isn't to say that density has no effect on the spread of disease, of course. This does indeed appear to be almost self-evident. The question is whether or not density is the primary factor, or a factor that's more important than other key factors, such as, say, per capita income or other sociodemographic indicators.
Many years ago, I had a lunatic roommate who would remove people's clothes from the laundry machines midcycle, throw temper tantrums like a child, and set the thermostat to crazy temps, among other things.
One workaround that one of my sane roommates and I designed for the thermostat problem was to go out and buy a second thermostat. We connected it to the HVAC system and disconnected the existing one but left it on the wall.
The new one was hidden behind the wall, but still accessible through a vented panel. The one on the wall was still powered—it beeped and displayed temps normally. It just was not connected to the system so it would not actually control the heat/air. It was a decoy.
The crazy roommate never figured out that the thermostat did not do anything. The belief of control was maintained, but control was secretly removed. I don't have many practical examples of how to do this, but we should do this to the government.
Give politicians, activists, and corporate media "fake thermostats" to adjust to their hearts' content, so they can exercise their tyrannical dreams without turning our lives into nightmares.
They probably won't figure it out, because they will be too busy celebrating their victories and patting themselves on the back to check the outcomes of their "policy." Even if they did check, they would probably succumb to confirmation bias and attribute the healthy, free society and good economic outcomes to their own tinkering with the fake thermostats. Our response should be to pat them on the head and say "Good job!" like we would to a child pretending to steer the car from the back seat while the adult drives.