Power & Market

Why Denmark Is not Part of the Eurozone

Denmark as a country in Europe with a population around 5.8 million people and with a GDP per capita of more than 60 thousand dollars. Since 1973, Denmark has been a part European Union, which at that time was called the "European Community." Despite being a part of EU, Denmark is not a part of Eurozone, and it looks like Denmark won't be joining any time soon.

The Voters Say No

According to the public opinion surveys in the European Union (research held in Spring 2018) only 29% of Danish responders were in favor of accepting the Euro as potential National currency. EU-wide, this number was 61%. The vast majority — 65 percent — of Danish responders were against monetary union.  EU-wide, this number was 32 percent. The only area where the Danish are in line with European average is the 6% of respondents that do not have opinion on that topic.1

Moreover, in Danish modern history two referendums have taken place in regards to Euro implementation. The first referendum was held in June 2, 1992 and was a “proxy referendum.” The vote was for or against ratification of the Maastricht Treaty, which established the Economic and Monetary Union of the European Union. The idea of the Maastricht Treaty was minimally rejected by Danish voters — 50.7 percent of the voters were against while 49.3 percent where in favor. The rejected referendum had impacted further negotiations, leading to the Danish-government negotiating limitations on EU mandatesknown as the Danish Opt-outs. One of these opt-outs was the decision to not adopt the europ. In 2000, Danish voters voted on whether or not the country should join the euro zone or stay with its national currency the Danish krone. The measure was rejected by 53.2 percent of voters.

Why There is Opposition

One advantage to joiuning the euro zone would be a decrease of the interests rates on Danish government bonds, despite the fact that since 2014, the interest rate of 10 years government bond is below 1%. (Denmark’s government bonds are rated with rating AAA with stable outlook.)

On the other hand, a disadvantage of adopting the euro — as the voters see it — would be a loss of domestic control over monetary policy. However, under current policy, the independence of the Danish krone is only an illusion. Since 1982 ,the currency of Denmark has had fixed exchange rate with the German mark. When the mark was changed to the euro, the Danish central bank joined the ERM II (European Exchange Rate Mechanism). This mechanism fixes the currency exchange rate at 1 euro to 7.460 Danish krone with the possibility of fluctuation of 2.25 percent. Naturally, this limits the independence of the Danish central bank. Each deviation above or below 2.25 percent triggers intervention by the Danish Central Bank.

By the standards of the EU itself, Denmark is more than qualified to join the euro zone. All the criteria have been met, including the inflation rate, the size of the budget deficit, the Debt-to-GDP ratio, and more. But it looks like the Danish voters are not yet prepared to hand over control of monetary policy to the EU's central bankers.

Further reading:

 

  • 1. "Standard Eurobarometer" Spring 2018, European Commission
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Which Branch of Government Is the Worst? A Ranked List

11/21/2019Ryan McMaken

The US federal government is divided up into a variety of institutions, with the three main "branches" of government designed to compete against each other. Theoretically, these three branches were initially thought to place checks on the other branches of government, thus minimizing abuses of power by the federal government overall.

Things haven't really worked out that way. Thanks to the rise of political parties, coordination between the branches — along party lines — has often replaced competition between the branches. Moreover, as political parties vie for the a controlling majority in the various branches, they are loath to limit the power of these institutions lest these partisans limit their own power in the process. Nor do the different branches represent different socio-economic groups in the manner imagined by John Adams in his Defense of the Constitutions.

So weakened had this imagined separation of powers become by the time of the New Deal that Franklin Roosevelt asserted during the days of his court-packing scheme that the various branches of government existed to work together, rather than to mutually obstruct each other. In a 1937 "fireside chat," Roosevelt claimed the federal government is

a three-horse team provided by the Constitution to the American people so that their field might be plowed. The three horses are, of course, the three branches of government – the Congress, the Executive and the Courts. Two of the horses are pulling in unison today; the third is not.

FDR's point was that the Supreme Court was being obstructionist, and it ought to conform itself to the other two branches of government, since it was the duty of each branch to assist the other branches in "plowing the field."

The fact many people would find this theory remotely plausible speaks to the magnitude of the public's disregard for the notion the division of the federal government into branches was supposed to prevent government action, not facilitate it.

Not All Branches Are Equally Terrible

FDR, of course, is the poster child for claims the presidency has become lopsidedly more powerful than the other branches of government. Through the party structure, FDR was able to dominate Congress, and through the cult of personality that surrounded him, he was even able to intimidate the Supreme Court as well.

But FDR certainly isn't the only example of how the presidency has come to be the driver behind most of the federal government's worst abuses and usurpations of power.

For detailed accounts of these many crimes, the reader may consult Reassessing the Presidency, published by the Mises Institute in 2001.

In it, the authors explore how the presidency has greatly expanded its power at the expense of Congress (of, of course, ordinary Americans).

This has been made possible by both inaction and support from the other branches. For example, except in rare cases, the Supreme Court has tended to defer to the other branches of government — and especially the presidency — when the court perceived both of the other branches were unlikely to oppose the court's decisions on a topic.

Meanwhile, the Congress's danger has mostly manifested itself through inaction and through its deference to both the Presidency and the Supreme Court. Over the past century, Congress has repeatedly handed over its lawmaking authority to the executive branch and to a variety of independent regulatory agencies.

The Rise of the Fourth Branch

This capitulation to the presidency and the administrative state, however, has enabled what has become an essentially independent fourth branch of government. Yesterday, in an article titled "The Deep State: The Headless Fourth Branch of Government," I described how the regulatory and national-security agencies of the executive branch have evolved over the past century to become more or less autonomous in their own right.

These organizations are sometimes collectively called "the deep state," and their are characterized by a lack of responsiveness to the electorate or to any other branch of government.

Although the president is technically the head of these agencies, he can only count on cooperation if there is general agreement among the agencies' personnel that the president's agenda does not threaten them. In other words, the president can often count on cooperation from this deep state to expand the executive branch's power. These same agencies, however, tend to place insurmountable obstacles in the way of any president who might attempt to significantly curtail the powers of the federal bureaucracy.

While the president's formal power is certainly quite vast, the informal power of this permanent bureaucracy is much greater. The agency personnel can usually wait out any president, and if a president becomes too inconvenient, these same bureaucrats can engage in a variety of investigations, indictments, and leaks designed to undermine the president. What they do is often secret, protecting it from public scorn.

The fact many of these bureaucrats have tenured positions, and function largely in the shadows, increases their power further. Even enormous failures on their part — as evidenced in the failure to prevent 9/11, or to "win" the failed War on Drugs — only leads to even larger budgets and even broader prerogatives.

From Worst to Least-Awful

Since the New Deal, and especially since 9/11, I suggest this fourth branch of government has actually become the most dangerous one. Ranking the branches of government from the worst to least bad, it looks like this:

  1. The Permanent Administrative State
  2. The Presidency
  3. The Supreme Court
  4. The Congress

The bureaucracy, as we've seen, is dangerous largely because of its permanence and the lack of any means in ensuring accountability. While elected officials come and go, career bureaucrats (military and otherwise) are more or less permanent. Moreover, since the other branches depend on the bureaucracy to enforce the "rules," there is no means of enforcing accountability on the bureaucracy beyond the short term.

The Presidency, on the other hand, is dangerous for both administrative and political reasons. It can use hero worship and mass media to ram through legislation. The President can also issue executive orders, essentially creating new legislation without Congressional approval.

The problem with the Supreme Court stems largely from its exalted position in the minds of voters. Polls show Americans trust the "judicial branch" more than either the Presidency or Congress. Thus, when the Supreme Court hands down its decisions, these decrees are often considered to be indubitable fait accomplis. On the other hand, the court has no means of enforcing its decisions, lessening its de facto power.

And then there is the Congress — the least popular, least respected, and most disorganized branch of the federal government. This is the branch which has the least ability to capitalize on a cult of personality given its lack of any single established figurehead. Moreover, turnover in Congress is higher than most people think. Although some members of Congress serve for decades, most members have tenures that are much shorter. The average tenure for current members is 8.6 years in the House and 10.1 years in the Senate.This means many members of Congress come and go as quickly as the presidents.

So What?

But if we've determined which federal institutions are the worst, the question remains: so what?

Well, this sort of analysis may help us determine which side is the greater threat when observing conflicts within the federal government. It also helps us to see through the rhetoric of political parties who always insist attempts at limiting their guy's power is unconstitutional or inappropriate.

One example of this was Nancy Pelosi's diplomatic trip to Syria in 2007, during which the Speaker attempted to assert some Congressional control over the White House's foreign policy. Vice president Dick Cheney denounced the move, insisting "we don’t need 535 secretaries of state" and claiming Congress should defer to the president on all matters of foreign policy. Cheney, of course, was wrong, and it would be a good thing if Congress spent quite a bit more time "meddling" in the White House's foreign policy agenda. The proper view of this relationship between Congress and the White House, however, is often clouded by partisan loyalties.

On the other hand, during the Trump administration, we've seen the permanent bureaucracy assert itself in its attempts to undermine the presidency, and to protect the deep state's own interests. The House majority has been supportive of this for partisan reasons. But more fundamentally — as a recent New York Times article concludes — this has really been a conflict between the presidency and the deep state. Although the presidency's power is already bloated to dangerous levels, the power of the permanent administrative state is even greater, more unaccountable, and most dangerous of all.

Mere partisan analysis would impel us to overlook this, but by keeping an eye on the relative danger of each branch within the federal government, we may perhaps be more able to identify the worst of the bad guys in each new political controversy.

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Why a "Crypto-Yuan" Won't Threaten the Dollar

11/12/2019Daniel Lacalle

A state-owned cryptocurrency is, in itself, a contradiction in terms. The main reason why citizens want to use cryptocurrencies or gold is precisely to avoid the government or central bank monopoly of money.

For a currency to be a world reserve of value, widespread means of exchange and unit of measure, there are many things that need to happen, but the first pillar of a world reserve currency is stability and transparency.

China cannot disrupt the global monetary system and dethrone the US dollar when it has one of the world’s tightest capital control systems, a lack of separation of powers and weak transparency in its own financial system.

The U.S. dollar is the most traded currency in the world, and growing according to the Bank of International Settlement. The Yuan is 4% of the currency trade. This is because the financial balance of the US is the strongest, legal and investor security is one of the strongest in the world, and the currency and capital markets are open and transparent.

Unfortunately for China, the idea of a gold-backed cryptocurrency starts from the wrong premise. China’s own currency, the Yuan, is not backed by either global use nor gold. At all. China’s total gold reserves are less than 0.25% of its money supply. Many say that we do not know the real extent of China’s gold reserves. However, this goes back to my previous point. What confidence is the world going to have on a currency where the real level of gold reserves is simply a guess? Furthermore, why would any serious government under-report its gold reserves if it wants to be a safe haven, reserve status currency? It makes no sense.

The Yuan is as unsupported as any fiat currency, like the U.S. dollar, but much less traded and used as a store of value. As such, a cryptocurrency would not be backed by gold either. Even if the government said it was, and deployed all its reserves to the cryptocurrency, what confidence does the investor have that such backing will be guaranteed when the evidence is that even Chinese citizens have enormous limits to access their own savings in gold?

China’s gold reserves are an insignificant fraction of its money supply. Its biggest weakness comes from capital controls, lack of open and independent institutions safeguarding investors and constant intervention in its financial market.

China’s Yuan may become a world reserve currency one day. It will never happen while capital controls remain and legal-investor security is limited.

Originally published at DLacalle.com
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Why Income Is an Important Concept in Economics

At his entertaining blog, John Cochrane has a good thought experiment showing the flaws with conventional measures of income inequality. However, after making his great point, Cochrane summarizes by writing:

"Income" is really a fairly meaningless concept. We do not live in the Ancien Regime, or a Jane Austen novel in which people are described for life by the annual income they receive. Income varies a lot over a lifetime, and ebbs and flows for many. And "capital income" is not the same as earned income. The broad consensus theory of taxation states that capital income -- the rate of return you get to induce you to save some income for future consumption rather than to blow it all right away -- should not be taxed at all. It really isn't "income" in any meaningful sense. [Cochrane, bold added.]

I am amazed when economists, frustrated with arguments over inequality, conclude that the very concept of “income” itself is meaningless. Long-time readers may remember that I wrote a long article at Mises.org on the issue when Scott Sumner wrote an entire post arguing that “income” was a “meaningless, misleading, and pernicious concept.” (What is it with the Chicago School that makes economists jettison the very concept of income?)

Contra Cochrane and Sumner, income is actually a critical concept. As Hayek explained in his Pure Theory of Capital, income can be defined as how much one can consume without depleting capital. All of these accounting relationships are of course integral to economic calculation, upon which—as Mises showed—civilization itself depends.

In this short blog post I won’t give a full rebuttal and explanation of what income is, and how it relates to lifetime consumption (which Cochrane and Sumner do think is a meaningful concept—thank goodness). Interested readers can refer to my earlier piece. For our purposes here, let me just use an analogy to show why Cochrane and Sumner are overreacting. Imagine a PhD nutritionist surveying all the fad diet crazes and exclaiming:

"Weight" is really a fairly meaningless concept. We don’t all have the same body types, and can’t be described by a single number. Weight varies a lot over a lifetime, and ebbs and flows for many. And "fat weight" is not the same as “muscle weight.” The broad consensus theory of health states that gaining muscle weight shouldn’t be penalized at all. It really isn't "weight" in any meaningful sense.

Would the above make any sense at all? Would we excuse it by saying, “Oh, that nutritionist is just lashing out at the nonsense in the supermarket tabloids”? Of course not; we would just insist that the experts chide the novices for superficial discussions, and ask them for more nuanced analyses.

Likewise, just because politicians try to justify higher taxes through ludicrous abuses of statistics, doesn’t mean the very concept of “income” is meaningless.

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Why the Number of Firms Doesn't Matter for Innovation

10/10/2019Per Bylund

Consumers do not gain because there are many producers of the same good, the number is irrelevant. They also do not gain from firms competing with each other, their strategies matter little. Consumers gain from production directed toward value creation.

We have been taught that competition "is" many actors trying to do exactly the same thing, which "forces" them to outdo each other. But it is a simplification that gets very close to being a lie.

The reason is that  the competitive pressure that makes a business continue to innovate and even reinvent itself is not that there "are others." What matters is that others may beat them in the future. This is more than hairsplitting. 

Consider a runner who is so fast that nobody in that sport can beat her/him. Does that mean s/he stops training or just works to maintain that skill? No. Because there is no guarantee that others, who have trained differently and developed a new set of skills, won't enter. So to stay on top, the runner needs to continue to get better. For business, it is more difficult, since those who judge the outcome -- consumers -- might change their minds and develop new wants. 

The same thing holds true though, it is not enough to "simply" beat the existing competition, because there may be new entrants with innovations that undermine the value of your offering. And competitors may reinvent themselves to do the same. 

True competition, which any business needs to deal with, is the possibility of better offerings in the future.

More importantly: this pressure exists regardless of how many are currently producing a certain good. Competitors in the flip phone market were not disrupted by a better/cheaper flip phone, but a different type of device: the smart phone. 

In other words, what really matters is the value proposition, how well one satisfies consumers -- not the number of competitors in the present market.

While firms in the existing market try to keep prices lower and quality higher than the existing competition, and try to position their offering with respect to competitors' similar offering, this "dance" is not what creates value. Innovative, imaginative, entrepreneurship is what facilitates value for consumers and creates, reshapes, and destroys industries. 

In other words, all that is needed for a competitive product offering is *one* producer -- as long as others are not hindered from entering. There is this mistaken belief that what matters to consumers is the number of firms already busy producing a good, preferably almost the same good, which has made us think of competition not in terms of entrepreneurship but "how many." It often is true that more firms competing for limited demand will therefore engage in innovation, but it is not the fact that there are other firms that benefits consumers--it is the innovation. 

And what drives innovation is the pursuit of future profitability. You can have a market with hundreds of similar firms producing, which is disrupted by one innovative entrepreneur, and that one entrepreneur is much more important than any of the hundreds of competitors. 

The entrepreneur creates the valued new offering that satisfies consumers; s/he destroys the old by creating the new. That's what matters, not the number of firms. 

Formatted from Twitter @PerBylund

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Why Property Rights Are Indispensable

In today’s political discussion, one of the fundamental principles our society is built on has been on the defense: private property rights and the protection of such rights. Just take the current debate about the housing shortage in Germany as a prime example. A very prominent policy proposal is flat-out expropriation of housing. Another one is the limitation of ownership of residential apartments.

Ideas such as these are not only supported by extremists. An activist group in Berlin collected over 77,000 signatures for the expropriation of private real estate corporations in Berlin. No worries, the appropriate vehicle for something like this already exists by the way: the German capital city already has an expropriation authority (Enteignungsbehörde).

Some proposals are less obvious, though they have the same basis. Rent control or the prohibition of “luxury renovations” seem harmless – but they are still major intrusions in one’s property. After all, these policies would result in the owner, in the legal sense, without real power or control over his own property.

Opponents of those policies correctly emphasize that housing in public ownership will lead to a state of disrepair, as it happened back in East Germany and as it still does to this day in socialist countries. The reason is that if the government has its hands in the housing sector to such a large extent, an imbalance of supply and demand will occur. And, as Mises and Hayek have shown, if too much tinkering with market prices fails, the price system will ultimately fail as well, leading to chaos, or that state of despair. At this point, socialists will point to a central planning board as a solution, but that would be no more than a “pretense of knowledge.”

However, the fundamental problem, of course, is the attack on private property itself. Property rights have not been created – they are a result of human action. Property rights developed over time through the interaction of people. Through a bottom-up process, this institution came into being organically, as Carl Menger, the founder of the Austrian School of Economcis, put it. It was not someone deciding top-down that we shall have property rights now. It came into being because people who accepted and protected property rights had an advantage over others, and so those others adopted the same approach.

The reason property rights have to be in place is scarcity. If the world was a utopia without any scarcity, private property would not be necessary. In such a world there would be no conflict between people over goods and services. There would be no necessity of an economy at all, as there would be no reason to trade. You could just have whatever you want. But the real world is characterized by scarcity. In the real world, not all dreams come true and human wishes stay unfulfilled. Some people have certain desirable goods, while others don’t.

At this point, there are two options: a Hobbesian anarchy, where everyone fights it out with hands and fists (or worse) who “owns” what – owning it only until someone else, someone stronger, comes along again. Or, you safeguard ownership, so that property is protected and the owner can be assured that he or she will own whatever he or she owns for longer, ultimately having the option to cultivate, to further develop the property – or to trade it for something else. Thus, property rights are at the basis of a genuine rule of law.

Without property rights, distrust and violence gain the upper hand. But with property rights, a peaceful order can emerge. It is this that Berlin’s expropriators seemingly have not realized yet.

Originally published by the Austrian Economics Center.

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Why $100 Bills Are Now the US Dollar's Most Common Banknote

The “War on Cash” which remained largely under the radar for years with few having noticed this assault on physical currency by governments around the world, other than the libertarian movement. This is no conspiracy theory, it has already occurred to a small extent.

Some prominent economists, including Rogoff and former US Treasury Secretary Lawrence Summers, have advocated phasing out high-denomination paper currency to discourage tax evasion and other forms of corruption. India and euro area countries have done just that in recent years: the Reserve Bank of India withdrew the 500 and 1,000 rupee bills from circulation and stripped them of their status as legal tender in 2016, with disruptive effects, while the European Central Bank stopped producing and issuing the 500 euro note in early 2019.

A recent paper by the International Monetary Fund (IMF) shows how the $100 dollar bill is now the most widely circulated US note. The truth is, 80 percent of $100 bills are held outside the US, and 60 percent of all physical notes are as well. Economist Kenneth Rogoff from Harvard University claims that the major reason for this is criminal activity such as money laundering and human trafficking. But there is something I noticed when reading more about it:

With increasing digitalization of payment systems in recent years, Kyriakos-Saad says, concerns about traceability could be a factor. But it’s incorrect to always associate cash with corruption, he says. “There’s this lingering desire for privacy, and desire for anonymity, which can be entirely legitimate.”And this anonymity is precisely what makes cash usage patterns so challenging to understand.

This seems obvious enough, at least to libertarians. But the report it goes on:

Rogoff adds that there may be another factor at play: “Underground demand for paper currency has been surely rising in part because interest rates and inflation are exceptionally low.”

But why the dollar? Other countries have currencies used abroad. “We think that the significance of foreign demand is unique to the dollar,” Judson said. “Other currencies are also used outside their home countries, but as far as we can tell, the dollar has the largest share of notes held outside the country.”

The dollar’s role as the dominant international reserve currency may be the key, according to Rogoff. “The dollar is now the only global currency; the euro has stalled, and the renminbi is decades away from challenging,” he says.

We look at interest rates as the opportunity cost of holding money in physical form. When interest rates rise, that opportunity cost rises since we can earn a higher return by keeping it in an account at our banks. When interest rates fall, that cost falls as well. This is important because these economists also propose using negative interest rates in the future. So, with both the elimination of cash, particularly large denominations, and negative interest rates, what does this mean for holders of those dollars?

Will they lose out? Or is this an opportunity to actually profit from holding physical currency at a time when our digital dollars held in our bank accounts will be devalued, taxed, and siphoned away with bank fees in which we cannot escape since we cannot withdrawal physical currency by law? And if interest rates are an opportunity cost of holding physical cash, then those who possess these high denominations of dollars will likely have more buying power than those who rely strictly on digital transactions. Perhaps physical dollars and digital dollars will be recognized as two distinct mediums of exchange. If that’s the case, then perhaps there is a great benefit to holding some cash instead of electronic deposits.

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Why All Proper Economics is "Free Market" Economics

06/24/2019Per Bylund

There is a lot of confusion about the term "free market economics." It is not a matter of advocacy, but a description of what's studied. Just like labor economics is not a matter of standing up for working class interests, but a study of how labor markets work.

So free market economics is a study of how free markets (would) work. It is a positive theoretical study, not ideology. So, for instance, Austrian economics is free market economics in this very positive sense, and for good reason: in order to understand how an economy (specifically, markets) functions, one must first establish which processes are innate to markets and how they work. Only after this has been established can one introduce (theoretically) exogenous influences such as institutions (including but not exclusively interventionism).

Whoever starts with the present economy as-is finds himself in a problematic situation, because it is impossible to then separate what effects, outcomes, and orders are due to markets per se and which are due to other influences.

Markets (actually, economies) are inherently endogenous (causes are human action, which are influenced by the effects). This is also why a study of markets and economies cannot be studied inductively, because the result is just one big blob of interrelated data points.

Economists have understood this for centuries, which is why economics proper has always been primarily a study of theory.

To put it differently, there are no pure market economies in the world that one can study empirically to establish economic regularities to then apply on mixed and control economies.

In this sense, ALL economic theories must to some sense be free market economics: in order to study how economies work  what the effects of added or removed influences will be, etc.  one must first understand the pure mechanisms of what 19th century scholars called the "economic organism" (the economic aspect of society).

One can perhaps criticize economics on the ground that there are no pure economic mechanisms, that there is no economic aspect to human behavior. But experience (my own as well as economics' more than quarter-millennium-old) shows that such critiques are predominantly ideological and not theoretical.

The fact that economics proper is "free market" in the positive sense is no stranger than natural sciences using controlled experiments to separate true causes. It's just that economics is more difficult, because there is no way of constructing such experiments to capture the true workings of a complete economy, including the profit-and-loss system, real entrepreneurship, accumulation of capital etc.

To criticize economics proper, one must do better than to use one's own ideological biases to create misinterpretation of theory as ideology.

Formatted from Twitter @PerBylund
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Why Private Roads Would Have Fewer Traffic Jams

06/18/2019Gor Mkrtchian

The regular occurrence of traffic jams in major cities is not an immutable fact of urban life. Private roads show us the path out.

A shortage occurs when the price of a scarce good is set below the market-clearing price.1 If the state monopolized milk production, produced a fixed quantity of milk every year, set the price of milk at zero, and distributed it on a first-come first-serve basis, the result would be an anarchic rush to attain as much milk as possible, without consideration for the milk needs of others. A shortage would occur.

The state, for almost all of the highways and streets it controls, has set the price of this essential, scarce good at zero. Traffic jams are a manifestation of shortages in the road supply. Treating a good of which there exists a finite supply as though it existed in infinite abundance (had a price of zero) is incongruent with reality, and we should expect it to cause problems.

Congestion Pricing

If prices were allowed to adjust to demand, the price of using a given highway would increase when more people want to use it and decrease when fewer people want to use it.2 The result would be that people would think twice before driving at a costly time. Those who needed most to use the highway at a time of high demand would be willing to pay the price,3 while those who were willing to wait would adjust their behavior on the margin. When demand and hence prices for roads are highest, more people would go to the close bowling alley instead of the far away movie theatre, the closer restaurant instead of the farther one, or do something at home instead of going for a drive. They would be more cautious to schedule their errands before or after peak hours, instead of during them. As a result, the number of cars driving during peak hours would be reduced, mitigating traffic jams.

Employers would also react to priced roads by altering their employees’ hours. Employers would seek to schedule their workers’ shifts such that their commutes are during cheaper, lower demand hours, lest the employer need to pay higher salaries to offset the inconvenience of more expensive, slower commutes to attract employees of the same quality. The result would be more staggered commute schedules, such that fewer people are driving to or from work at any given time, reducing traffic.

Some businesses like restaurants and movie theaters would not react much, because:

Most restaurants, for example, are busiest during breakfast, lunch, and dinner time, and perhaps, in some cases, after show closings, for late-night meals. In other words, restaurants suffer from congested traffic, a peak load problem, during these times. But, were a restaurant management seriously to propose that its customers stagger their meal times ‘in order to reduce and spread out the rush hour peaks,’ it would be laughed right out of business in a trice. Its competitors would have a field day.4

However, other businesses would be more capable of beginning their employees’ shifts a few hours earlier or later than the bulk of other employers:

. . . if a price reduction is offered for off-peak travel, all employers will be tempted to accede to the wishes of their employees for cheaper travel. The ones who actually give in and reschedule their work forces will tend to be the ones whose employees’ productivity is increased to the least degree by working the same hours as the general labor force.5

The result would be social coordination of road use. Those industries which least need their employees working at a particular time would most strongly react to road prices by scheduling shifts to provide the cheapest commutes. If omnipotent, caring Martians were to dictate to every industry when their employees’ shifts should begin to both maximize workplace productivity and minimize traffic, the result would be the same as under a system of private roads.

Not only would the currently existing roads be rationed according to prices instead of the current free-for-all, the ability to make money from providing roads would lead to the widening of existing roads and the creation of new roads altogether when demand points to new profits to capture, “Privately-owned roads and bridges would have tolls set by supply and demand, just like prices are set in any other market. Infrastructure in need of repair or expansion would get it, whereas wasteful boondoggles would be minimized with private money on the line.”6

Likewise, road owners hoping to lure potential customers to choose their routes instead of rival routes (intra-market competition) or to use their routes more often instead of staying at home and driving less altogether (inter-market competition) would wish to make their roads as safe, uncongested, and attractive as possible. This means wherever currently there is a stop-sign that should be a yield sign, a 45 MPH speed limit that should be a 65 MPH speed limit, a traditional intersection that should be a roundabout, or any other change in road design and rules, private road owners would be driven by self-interest to adjust in order to maximize safety and traffic flow.

Contrast this with the current system under which certain government run intersections are infamous for being dangerous and accident prone. Why do political actors allow these preventable series of tragedies to persist rather than adjusting the designs and/or rules of those intersections? The overseers of government run roads are chosen democratically, rather than by the market. Whereas the private owner of a road bears direct legal and financial responsibility for its safety, mayoral, gubernatorial, and presidential elections, occurring once every four years, seldom depend upon the candidates’ positions on individual intersections or roads:

The dollar vote occurs every day, the ballot box vote only every two or four years. The former may be applied narrowly, to a single product (e.g., the Edsel) while the latter is a ‘package deal,’ an all or none proposition for one candidate or the other. That is, there was no way to register approval of Bush’s policies in areas 1, 3, 5 and 7, and for Clinton in 2, 4, 6, and 8. People were limited to choosing one or the other in the last presidential election.7

Mayor Jones and Governor Smith may go through their entire election campaigns and reigns without giving a thought to death-trap intersections under their jurisdictions that could stop killing people if only some signs or speed-bumps were added. With privatization, each road would have a special caretaker, an owner, whose livelihood and freedom depended on the quality and safety of their product.

Road privatization launches a triple-attack on traffic. First, prices for road use allow coordination in when and how much travelers use particular roads. Second, the road supply is increased through construction of new roads and expansion of existing roads. Third, entrepreneurs seeking to improve their services would optimize the designs and rules of their roads. In severe traffic, how often have our thoughts turned to state-enforced population control, when we just needed to know that keeping the price of a scarce good at zero causes shortages?

  • 1. The market-clearing price is the price at which there is a willing and able buyer for every unit of a good produced, and visa-versa.
  • 2. Uber’s surge pricing works similarly.
  • 3. If roads were privately provided, the state would no longer need to collect taxes to finance roads, and so society could use the money saved in taxes to pay for tolls, or anything else.
  • 4. Walter Block, The Privatization of Roads and Highways, Ludwig von Mises Institute, 2009, p. 60.
  • 5. Ibid., pp. 60-61.
  • 6. Robert P. Murphy, “A Gas Tax Hike is the Wrong Way to Fund Highways,” Mises Wire, 2018.
  • 7. Walter Block, The Privatization of Roads and Highways, Ludwig von Mises Institute, 2009, p. 196.
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Why Attacking Big Business Is Back In Vogue

06/12/2019Tom Chanter

"Progressive" politicians like Bernie Sanders, Alexandria Ocasio-Cortez, and Elizabeth Warren are becoming more fashionable, and it follows that attacking big business is back in vogue. “Political and academic progressives expand their frenzied attacks on ‘wealth’ and on the alleged transgressions of ‘big business,’” writes Dominick Armentano, Professor Emeritus in Economics at the University of Hartford.

What is it about human nature that drives these attacks? Perhaps we must look to Ludwig Von Mises for an answer. But first, we can get a general idea of how the anti-big-business impulse remains so popular by looking at the work of economist Tyler Cowen.

In April, Cowen published his latest book, Big Business: A Love Letter to an American Anti-Hero, documenting how “Most young Americans hold highly critical perspectives on capitalism.” Indeed, the Harvard Kennedy School produced a report on young adults, revealing 51 percent did not support capitalism. Furthermore, 33 percent endorsed socialism as an alternative.

Clearly, that 33 percent is ignorant to the Two Reasons Why Socialism Repeatedly Fails;

1) the impossibility of economic calculation without true market prices, and

2) the lack of an incentive to produce only what consumers actually want.

Nevertheless, support for socialism endures, and we don’t have to look further than our TV screens and Twitter to observe what may be the one of the key points of origin of this critical narrative against big business. Yet this negativity is driven by more than radical rhetoric from the left-wing media. The very nature of media coverage has an effect.

Cowen adds, “Virtually all media outlets have a significant bias toward negative news of all kinds, including news about business. So scandals, corruption, and abuse of workers all receive much more publicity than the normal, everyday massive successes of America’s major corporations. “Corporations had another stellar day producing things and keeping people employed,” just isn’t a great news headline.”

Furthermore, big business is blamed for the failings of big government. We need look no further than the Occupy Wall Street movement. As the angry masses protested on Wall Street, a more appropriate place to fight for freedom was a short walk away: three blocks north of Wall Street at 33 Liberty Street sits a brownstone building — the home of the Federal Reserve.

Yet, there was little interest in addressing the outsized role of the Federal Reserve in manipulating the global economy. This blind spot for the role of the central bank illustrates just how wrongheaded are many leftwing approaches to diagnosing the source of our economic problems. 

Protestors would do well to consult Austrian Business Cycle Theory which helps explain how the stock market crash and economic downturn were attributable not to "big business," but largely to a prior bank credit expansion by the Federal Reserve and the Fed-regulated banking sector.

Yet, anti-capitalist agitprop spreads through social-media like typhus through the Gulags, even though it is private capital and private business which has made social media possible.

This sort of thing is nothing new. As Ludwig Von Mises wrote, “All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamoring for the products it turns out.”

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