"The FBI Is in Crisis" — And That's a Good Thing

"The FBI Is in Crisis" — And That's a Good Thing

05/03/2018Tho Bishop

A Time article made Drudge this morning with the headline "The FBI Is in Crisis. It's Worse Than You Think."

While the article does a good job of listing various real failures of the FBI (failing to properly vet employees, failing to respond to tips on individuals who would go on to commit mass shootings and other horrific high profile cases), the main thrust of the article is that the attacks waged at the FBI by President Trump have destroyed public trust in the bureau:

Trump makes a point of praising rank-and-file agents, but his punches have landed inside the FBI and out. Some worry the damage may take years to repair. “I fear Trump’s relentless attacks on the institution are having an effect on the public’s confidence in the FBI,” says Matthew S. Axelrod, a senior Justice Department official in the Obama Administration.

Mueller may play an outsize role in how his old agency gets through the current crisis. If the special counsel finds that Russia did collude with members of the Trump campaign–the central question in his investigation–and any perpetrators are charged and found guilty in court, it would rebut Trump’s charges of a “witch hunt.” If Mueller finds no evidence of collusion, or declines to make it public, it would open the door for Trump and his campaign to paint the FBI as a band of partisan hacks with a reputation, as he has tweeted, “in tatters.”

There may be no immediate way to fix a place with as many missions and masters as the FBI.

The article also offers the example of the Bundy case as an instance where even judges are questioning the integrity of the FBI: 

The concerns about FBI testimony in a major terrorist prosecution underscore a larger question: Are people less likely to believe what the bureau says these days? In January, a federal judge threw out all the criminal charges against renegade Nevada cattleman Cliven Bundy, his two sons and a supporter who had been in an armed standoff over unpaid grazing fees. Judge Gloria Navarro accused the government of “outrageous” and “flagrant” misconduct, citing failures by both prosecutors and the FBI to produce at least 1,000 pages of required documents. The judge said the FBI misplaced–or “perhaps hid”–a thumb drive revealing the existence of snipers and a surveillance camera at the site of the standoff.

A related case in Oregon, growing out of the 2016 takeover of a wildlife refuge by Bundy’s sons and their followers, has not gone well for the FBI either. An agent at the scene, W. Joseph Astarita, is now charged with five criminal counts after prosecutors say he falsely denied shooting twice at an occupation leader who was fatally shot by police, who said he appeared to be reaching for his handgun during a roadside encounter. The Bundy sons and five supporters who helped in the takeover were found not guilty of conspiracy and weapons charges, in another jarring setback for the government.

This may be a sign of "crisis" for the FBI, but it's a win for the country and the rule of law. After all, the history of the FBI abusing its power to 

As James Bovard wrote last year:

President Trump’s firing of FBI chief James Comey on May 9 spurred much of the media and many Democrats to rally around America’s most powerful domestic federal agency. But the FBI has a long record of both deceit and incompetence. Five years ago, Americans learned that the FBI was teaching its agents that “the FBI has the ability to bend or suspend the law to impinge on the freedom of others.” This has practically been the Bureau’s motif since its creation in 1908.


(He goes on to offer a short history of the FBI's abuses, from WWI to the War on Terror.)

Of course defenders of the FBI may concede that the agency has not been perfect, but there is an obvious need for a Federal police force. Ryan McMaken does a great job debunking that in his article "Abolish the FBI":

It should be noted that the FBI was not created to fill a hole in law enforcement needs. On the contrary, it was created to usurp and displace a highly-efficient and effective private police force that already existed: the Pinkerton National Detective Agency. 

Writing in Private Investigation and Security Science: A Scientific Approach, Frank Machovec notes that "The FBI, founded in 1908, was modeled from Pinkerton's organization and methods," while Marie Gottschalk writes in The Prison and the Gallows that "In its early years, the FBI modeled itself after the Pinkertons and other private police agencies."...

Indeed, the rise of the FBI is very much the product of left-wing and labor unionist movements to curb the power of the Pinkertons in favor of the FBI and similar agencies. 

A recent example of this line of thought can be found in Elizabeth Joh's 2006 article "The Forgotten Threat: Private Policing and the State." 

As explained by Joh, the left was highly critical of the Pinkertons in the late nineteenth and early twentieth centuries for their role in combating striking workers and for being employed by private organizations. While federal police forces such as the FBI would work only in the "public interest" it was assumed, organizations like the the Pinkertons functioned at the morally base level of seeking "profit." 

The Pinkerton's however, never functioned with the sort of firepower, manpower, and legal immunity enjoyed by federal agencies today. 

So if the FBI is in crisis, good. The solution is simple: abolish it. 

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"Defund the Police" and "Thin Blue Line" Activists Are Both Wrong

09/08/2021Nick Stiles

The deep political and moral divisions between Americans were plainly exposed during the controversy over the police sparked by the death of George Floyd. The Left further radicalized, while conservatives dug their heels deeper into the status quo, staunchly defending what appeared to them a hallmark institution of Western civilization. Calls for “defunding the police” became mainstream on the left, while the slogan “Blue Lives Matter,” represented by a black American flag with a thin blue line (henceforth referred to as Thin Blue Line or TBL), soared to great popularity among conservatives. Many libertarians sided with the Left on this issue, seizing the opportunity to score political points and scavenge for a few more votes from disaffected “socially liberal” voters.1 According to them, the Left in this instance was advocating a libertarian policy and the Right was showing its statist side. However, libertarians who threw their support behind the Left failed to recognize the intellectual foundations of each position. If their misunderstanding persists, it could have disastrous results vis-à-vis the future establishment of a free society.

At first glance, it appears that libertarians should side with those calling for “defunding the police” over those wishing to increase taxation (the alternative to defunding is increasing funding) and enhance the authority of the state. However, the intellectual divide between libertarianism and all properly leftist ideologies is so profound that it necessitates their dissociation. The disagreement centers on the concept of property rights, a theory of which must form the foundation of libertarianism.2 The significance of this disagreement is underscored by the fact that any definition of the terms “liberty” or “aggression” ultimately falls back on a definition of property. Consider what a leftist would think about a man who beat up someone robbing his store. They would see the store owner as the aggressor, because, according to a common rationalization for looting, “destroying property is not violence.”3 But the true aggressor is the robber; the store owner merely defended what was his. Leftists either completely reject the libertarian concept of property or theorize it in an antilibertarian manner.

If libertarianism is contradictory to the theoretical foundations of nearly all strands of leftism, then how can the apparent similarity between their positions on policing be explained? This apparently confusing fact is due to two misunderstandings, the first of which is the belief that the United States is a completely free market nation. This myth is treated as fact by the majority of people on both the left and the right. However, the very existence of tax-funded police, not to mention innumerable other socialistic American institutions, makes it impossible for the United States to be a purely capitalist nation. The fact that the United States is one of the most capitalist nations on the planet does not imply that it is fully capitalist. Belief in this myth is widespread on the left; after all, it allows them to promote various statist programs and then simply blame the issues caused by the programs’ inevitable failures on capitalism. This myth is also commonly accepted on the right, and is exhibited most clearly in the talking points of mainstream conservatives, who like to call the United States capitalist but cannot even define the term. The falsity of this myth is implicitly recognized by many conservatives when they make such statements as “The country has been ruined by X.” But when they go on to defend every aspect of the United States, they seem to return to the belief that their nation is nearly perfect.

The second misunderstanding is the failure of TBL conservatives to recognize the distinction between natural law, which derives from man’s nature and upholds his inherent notion of justice, and positive law, which is legislated and enforced by the state.4 Natural law is discovered; positive law is imposed. This explains why many conservatives will simultaneously raise TBL and Gadsden flags and see no contradiction. Police, as agents of the state, are enforcers of positive law. But if there is no distinction between positive law and natural law, then any law enforced by the police is just, and the police become the embodiment of justice. On the other hand, libertarians contend the state commits numerous and severe violations of natural law, and that it is the very institutionalization of injustice.

Due to these two misunderstandings, both the Left and the Right have mistakenly associated capitalism and private property rights with the police. Both sides see the police as the enforcers of the capitalist order; if police were abolished, the country would supposedly be chaotically overrun by socialists and criminals.5 This idea accounts for the failure of the Left to ask, “Who will enforce redistribution of wealth?,” and for the Right to ask, “Who will enforce gun control laws?” The police are the answer to both questions, and recognition of this should impel each group to reconsider its stance on the police. The police are not enforcers of natural law or private property rights, but of positive law and the edicts of the state. They will act in accordance with the incentive structure created by a state-run monopoly. Even when local police happen to resist federal edicts, it is only because the state or local governments have created a stronger incentive in the opposite direction, not because they are inherently enforcers of justice. If TBL conservatives can see this, they may reconsider their unquestioning faith in the agents of the state.

We now must ask who is the greater enemy of the free and just society: those who claim to uphold liberty and private property rights yet fail to see the role of the police in suppressing those values, or those who reject private property in the first place? I contend that the first group is more aligned with libertarianism. While there is surface-level agreement between libertarianism and leftism on the issue of police, this is not based on shared theoretical foundations but on two less profound misunderstandings. The contradictions in the TBL conservatives’ position should be pointed out, and hopefully will impel some of them to reconsider their views. However, we must recognize that, on the broad spectrum of political ideologies, American conservatives are closer to libertarians than it might appear, while leftists, who hate our very civilization and values, are becoming irredeemably distant.

  • 1. Some even threw their support behind the Black Lives Matter movement and its slogans. For example, see the Twitter post of 2020 Libertarian presidential candidate Jo Jorgensen, who wrote, “It is not enough to be passively not racist, we must be actively anti-racist.” Interestingly, these are the words of Ibram X. Kendi, a man who calls for a “department of antiracism” to be created in the United States government which will deem racist anything which produces “discrepancies,” i.e., any result other than complete equality of outcomes, while recommending measures to enforce such total equality. See also the Twitter post of the official Libertarian Party, which wrote, “Remember Michael Brown.” Michael Brown is the man who was said to have been shot while his hands were up, prompting the popularization of the phrase “Hands up, don’t shoot.” It was later shown that this was false; Brown assaulted the officer, attempted to take his firearm, and never had his hands up.
  • 2. See Murray N. Rothbard, “Justice and Property Rights,” in Egalitarianism as a Revolt against Nature, 2d ed. (Auburn, AL: Ludwig von Mises Institute, 2000), pp. 89–114.
  • 3. These are the words of Nikole-Hannah Jones, popular leftist author and creator of the infamous 1619 Project, who said, “Destroying property, which can be replaced, is not violence. To use the same language to describe those two things… I think it’s really not moral to do that.”
  • 4. See Murray N. Rothbard, The Ethics of Liberty, 2d ed. (New York: New York University Press, 1998), chap. 3.
  • 5. See the mission statement of the Thin Blue Line Foundation, which claims, “The Thin Blue Line represents the men and women of law enforcement that stand between good and evil, order and chaos. The black stripe above the blue line represents the law abiding community and the bottom black stripe below the blue line represents the criminals who want to cause destruction and chaos.”
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Government Schooling vs. The Family

09/08/2021Peyton Gouzien

Supporters of the state often point to the idea that the "state is the oldest institution in human history" as a defense of the state’s existence. This is an insanely false claim debunked expertly by the Institute’s own Ryan McMaken at this year’s Mises University. The actual oldest institution in human history is the family unit. Even Neanderthals, the biological evolutionary predecessors to Humans, who lacked the complex civilization of us homo sapiens, had family units that were critical to their survival as a species. Even other apes that exist today, such as chimpanzees, have family units comparable to our own.

The family is an important part of the survival of humans and even remains a crucial part of human survival today. From the day we are born our parents, whether biological or adopted, are our caretakers and the primary influencers of our moral principles and outlook on life. This is the role they take on and their service to children as the main authority for guidance, punishment, and catalyst for success.

At least this is how it is meant to be in the natural world. With the advent of the modern state, the natural order has been upset by the appropriation of the purpose of parents. Thanks to the state’s alliance with the intellectual and academic class, as described by Murray Rothbard in Anatomy of the State, this is made possible as “intellectual” arguments are made for the state and taught to the public.

This alliance’s effects are seen through the public education system’s widespread and encroaching takeover of the narrative in the battle for the minds of our children through their pro-state narratives on history, economics, and politics. Our children are increasingly raised and taught by those outside the family unit. Kids, on average, start primary school as early as 6, but with the popularity of pre-School, the introduction of the state’s narrative is starting as early as 3 years old.

Children have begun spending more and more time in government schools than at home, interacting with their parents less and less. This has caused teachers and school staff, not parents, to become the ones instilling values and beliefs in children. Do you think any of those would be towards questioning or even opposing the state?

This trend is not only troublesome towards combating the state but the actual success of our children. Even academic literature admits that parents play a crucial role as children’s primary educators and catalysts for success. It is no wonder that our educational output has been getting worse as the state has grown as a part of children’s lives.

Yet state-funded education continues to move further and further towards policies that cut parents out of the picture. Contrary to Public Education advocates narrative, Education spending by the federal, state, and local governments has been increasing according to the numbers they provide on the issue. As previously established despite the constant increases in spending educational output still has been getting worse. This is exactly because the expansion of the Education system is not actually about facilitating success for students but further subverting the role of the family and further implanting the idea that the state is necessary and good in the minds of the public.

The greatest evidence for such lies in the emphasis placed on secondary education. More people than ever are attending college now, with attendance rates increasing every year despite continual price increases. Many educators will push this as the “only option” or the “only good option,” even integrating it into the curriculum through Senior college essays and other programs. The reality is that they are wrong about it being “the only option” as several others exist, such as trade jobs that can often yield higher incomes than jobs out of a college degree.

The system itself can be supplanted by putting students directly into the jobs of the desired career as Economist Bryan Caplan explains in his book The Case Against Education: Why the Education System is a Waste of Time and Money. He establishes that the main purpose of all schooling, especially Secondary Education, is to prepare individuals to be good employees by creating a signaling device, a degree, that says that person shows up, does what they are told, and shows some level of competence. What Caplan points out though is that jobs themselves are signaling devices that show this and are more efficient by actually creating goods and services and giving career-specific knowledge rather than generalities and theoretical ideas.

This inefficiency is not one of incompetency, but a purposeful one that directs the public away from private institutions, such as the family, to state institutions to do as Rothbard described “make the arguments for the state’s existence”. This is something that could not be accomplished if the family was not subverted from early on by funneling children into what can only be described as an “educational prison” that the intellectual and academic class use to disseminate pro-state arguments that make them valuable to the state.

This is the reality of the bloated education system which encourages dependence on the state. Something it has had immense success in as expansions of government authority has become increasingly popular among younger people in the form of socialism or progressivism. A purposeful tactic that is no better seen than a perfect representative of the state and Intellectual class’s relationship in Karl Marx who wrote on the need to “abolish the family” and how the state “did the job for them.” and is doing as we speak.

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What’s a Few Trillion Towards Afghanistan?

09/06/2021Robert Aro

What does a few trillion dollars get you these days in war efforts and reconstruction projects? Unfortunately not much, according to the Office of the Special Inspector General for Afghanistan Reconstruction (SIGAR). In the recently published report, What We Need to Learn: Lessons from Twenty Years of Afghanistan Reconstruction, the numbers are abysmal. Starting with the largest:

U.S. efforts in Afghanistan, Iraq, and Pakistan over the last two decades are estimated to be $6.4 trillion.

(The cost of Afghanistan was about one-third, estimated to be $2.3 trillion as noted by Brown University.)

The executive summary in the SIGAR report opens with the U.S Government spending:

20 years and $145 billion trying to rebuild Afghanistan, its security forces, civilian government institutions, economy, and civil society.

$145 billion was specifically for reconstruction efforts and excludes the $837 billion the Department of Defence spent on warfighting. As follows, we find strange occurrences and a recurring theme of capital destruction. The list is long. But here are some noteworthy causes:

$9 billion on counternarcotics efforts since 2002, in part due to concerns that narcotics trafficking funded Taliban activities. Despite the investment, the cultivation of opium poppy in Afghanistan has trended upward for two decades…

Incredible how the war on drugs extends beyond America’s borders in a major way. It’s fair to say that no one would dare make the argument that if the narcotics budget was only slightly larger the war on Afghanistan’s drug production would have been won.

When imposing a system of western courts, the government failed remarkably:

$1 billion on rule of law programming in Afghanistan, with approximately 90 percent of that funding going toward the development of a formal legal system. That system, however, was foreign to most Afghans, who favored informal, community-level traditional dispute resolution mechanisms, where an estimated 80 to 90 percent of civil disputes have always been handled.

This is both sad and ironic as the US still has the highest incarceration rate in the world.

As for infrastructure projects:

In 2021, SIGAR audited a sample of 60 U.S. infrastructure projects in Afghanistan, and it found that $723.8 million, or 91 percent, had gone toward assets that were unused or abandoned, were not used as intended, had deteriorated, were destroyed, or some combination of the above.

And what may very well be the biggest, and unintentional, universal basic income experiment of all time:

$300 million a year was spent paying salaries to nonexistent personnel in the Afghan security forces.

The report is quite lengthy and details other government missteps such as the duplicate ordering of $195.2 million of cargo trucks or $488 million to support a mining sector, which appears non-existent at the moment.

For all these government investments, the country is not left with much to show for it. As Reuters recently reported, due to the recent events in Afghanistan:

Apart from illegal narcotics, the country has no significant exports to generate revenue, and aid, which accounted for more than 40% of economic output, has abruptly disappeared.

There is a shock effect of reading about government waste, seeing figures so large one can hardly fathom beyond a stat; however, the lesson here is to always follow the money.

All this money came from somewhere. Sure, some may be taxpayer funded. But debt funding cannot be overlooked. Specifically, if the Fed was barred from owning $5.4 trillion of US treasuries, who would pay for these doomed-to-fail projects?

At least for a few trillion dollars, a government backed bridge to nowhere would give us a place to drive, whereas this war effort constitutes nothing more than a fleeting moment in American history. All that remains becomes a monument, at best, to commemorate the dead.  Such is the society in which we’ve found ourselves, with us the majority (who don’t need them) versus them (the minority in power who always need us). Not one person will be held accountable for these atrocities; only worse, we’ll build presidential libraries in their names or give them tenure at prestigious universities for never speaking up against the known dangers of central banking.

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Small Businesses Are not the Key to Economic Growth

09/02/2021Lipton Matthews

Small businesses are usually touted as the driving force behind economic growth in modern societies. Throughout the world, politicians earnestly argue that small businesses are the backbone of the economy. In America, there is even an administration dedicated to building the capabilities of small businesses known as the “Small Business Administration.” The SBA oversees a dazzling suite of services to small businesses and is strangely insulated from criticisms.

Republicans and libertarian commentators in the media have upbraided the EXIM Bank for fostering crony capitalism. Generally, right-leaning economists scrutinize subsidies and special privileges, but despite the benefits accrued to small businesses – they remain a venerated symbol of American capitalism. Few seriously question their impact on economic growth or contribution to innovation. Instead, it is automatically assumed that small businesses generate prosperity.

But how did America’s fascination with small businesses emerge? According to historian Benjamin C Waterhouse the perception that small businesses hold the keys to economic dynamism is fairly recent. Waterhouse posits that the influential position occupied by small businesses in America, coincided with the election of Jimmy Carter who by situating himself as the first “small business owner” in the white house since Harry Truman infused lobbyists with energy.

Small businesses were also given a major boost when the findings of economist David Birch submitted that they were responsible for 80% of all new employment opportunities during 1968-1996. Although Birch recanted by admitting that the figure is dubious this statistic is frequently adduced to justify support for small businesses. Luckily, today there are ample studies guiding analysts to properly dissect the efficacy of small businesses.

Based on the data furnished by researchers it is evident that the importance of small businesses has been greatly embellished. For instance, innovation charity NESTA reported that during 2002-2008 in the United Kingdom, six percent of high-growth firms generated half of employment growth. Moreover, in their piece featured in the Harvard Business Review of Tuesday, February 3, 2014, Isenberg and Ross assert: “The literature consistently shows that a very small number, from one percent to six percent, or so, of all ventures in a region account for the lion’s share of net job creation and spill overs from entrepreneurship. However, increasing the number of start-ups has not increased the number of high-growth ventures.”

In fact, it appears that the reverse is true: small businesses are adept at making jobs redundant, since by the end of a decade 30 percent of small businesses remain viable. With such a dramatic failure rate the view that small businesses are initiators of jobs is indeed untenable. Similarly, libertarians may challenge Mariano Mazzucato’s theory that the state is necessary for innovation, but at least she is accurate in her summation of small businesses. Writing for the Economist she enunciates a clear case against prioritizing small businesses in Britain: “Once you take into account the number of SME jobs lost after the first three years of their creation, there is very little net job creation by these firms. Only 1% of new enterprises have sales of more than £ 1million six years after they start.”

On closer inspection, these findings are unsurprising because entrepreneurs are unequal in potential. Opportunity-driven entrepreneurs, on average, are more educated and often start businesses to capitalize on new challenges, whereas necessity-driven entrepreneurship is motivated by economic needs and typical of low-growth economies. Specifically, Robert Atkinson, the founder and President of the Innovation and Technology Innovation Foundation revealed to this writer in an interview that the typical small business owner rarely intends to form the next superstar, in essence, he is running a lifestyle business with little aptitude for expansion.

Economic literature also suggests that since firm productivity is associated with firm age, then on average, newer firms are less efficient in the management of resources. Economist Scott Shane in a seminal paper informs readers that high rates of new business formation are indicative of economic sluggishness: “As countries become wealthier the rate at which they create start-ups goes down. Societal wealth leads average wages to go up, which encourages business owners to use machines to replace work that used to be done by hand. As a result, the increased use of capital leads companies to grow in size and hire people who would have otherwise gone into business for themselves.”

Compared to large corporations small businesses are inept at ameliorating the conditions of workers as analysts based at ITIF points out in a recent report:

  • Workers in firms with more than 500 employees earn 38 percent more than workers in firms with less than 100.
  • Stores with 500 plus employees pay high school educated workers 26 percent more than stores with fewer than 10 employees, and they pay workers with some college education 36 percent more.
  • In 2012, workers in goods-producing industries were injured 25 percent less frequently in firms with more than 1,000 employees than they were in firms with 10- 49 employees.

Big firms even offer more lucrative benefits:

  • Workers in companies with more than 500 employees receive 85 percent more overtime and bonuses, 2.5 times more paid leave and insurance and 3.9 times more retirement benefits than workers in companies with fewer than 100 employees.

Large firms are resourced to provide an incredible array of benefits due to superior productivity:

  • The four largest firms in any industry have an average 37 percent higher productivity and 17 percent higher wages for production workers.

Meanwhile the notion that Americans would be better off if the economy was dominated by small businesses is refuted by data:

  • If the United States had the same firm size distribution as Europe which has more small firms then average annual income in America would be $5,200 lower. Shrinking the size of large firms in the United States to match Canada’s firm structure, would decrease U.S. per capita GDP by 3.4 percent.

In short, small businesses are not the pillar of the economy and neither is their performance superior to large corporations. Although the bureaucracy designed to enrich small businesses appears untouchable, the evidence presented should convince us that welfare for small businesses is unwarranted and must be gutted. Research foundations and private incubators can fill the gap created by the exit of government welfare. Funding unsustainable businesses is too costly for taxpayers.

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The Fed’s Exit Strategy (in 2009)

08/31/2021Robert Aro

Over a decade ago, on July 21, 2009, then Federal Reserve Chair Ben Bernanke wrote an article in the Wall Street Journal titled The Fed’s Exit Strategy. His words are all too familiar, starting with his opening sentences:

The depth and breadth of the global recession has required a highly accommodative monetary policy. Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. 

He follows with:

We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.

On July 28, 2021, as if continuing where Bernanke left off, current Fed Chair Jerome Powell explains many years later:

These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In instances of a national housing crisis or global pandemic, money is supposedly injected into the system to prevent catastrophe. The flow of credit must have been so bad it required the Fed’s balance sheet to reach $2 trillion in July of 2009. It continued to expand ever so steadily, where it now sits at $8.3 trillion.

So, what happened to the Fed’s exit strategy?

In his letter, Bernanke wrote:

At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.

Given the tremendous expansion in asset purchases since 2009, it’s difficult to know when exactly the exit strategy commenced.

See the Fed’s balance sheet below:

According to Bernanke, the Fed devotes:

…considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.

Sadly, like pulling troops out of a foreign nation, withdrawal is something which never comes easily.

He offers several ideas on how the Fed can be less accommodative, such as paying interest to banks on reserves held at the Fed or offering reverse repos, whereby the Fed sells a security to a bank with the promise to buy back the same security at a higher price. Per Bernanke, providing risk-free profits to wealthy intuitions will raise short-term interest rates and:

...limit the growth of broad measures of money and credit, thereby tightening monetary policy.

Unfortunately, the average person cannot access the Fed’s easy money programs, yet the average person is forced to accept these programs may create an “inflation problem." Beyond perusing an old speech, wondering how society got here, Bernanke’s speech serves as a reminder that there really is no such thing as a Fed Exit Strategy.

In the realm of possibility, the Fed could one day dramatically reduce its balance sheet, no longer looking to control rates no matter the cost. However, nothing indicates this would be done voluntarily. Whether Bernanke, Powell, or the Chair who follows, no matter what the Fed says about tapering, tightening or tinkering with interest rates, they will never lift their foot from the gas pedal.

The Fed sets the rules to a game we all must partake in (as long as we use their dollars), therefore they have no incentive to ever stop playing. They have no desire to slow down the money creation scheme beyond a mild transient period. Raising rates is off the table, maybe even indefinitely. It follows, they will continue using Fedspeak to make excuses, justifying their interventions and trying their best to keep the general population unaware that this monetary experiment will not end well. 

Some of us may want a truly free market, but those with the most power and influence appear to be in no rush of finding this anytime soon. Price discovery will have to wait for another day…

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Dr. Robert Murphy on the Jordan Peterson Podcast

08/31/2021Tho Bishop

Over the last several years, as Jordan Peterson rose to international fame, many thoughtful individuals in the Mises Institute orbit have voiced an appreciation for how Peterson's work may complement the Austrian tradition. Some have written on the topic, including Jonathan Newman who noted in 2018:

Jordan Peterson is not famous for his action framework, but it is central to his Maps of Meaning book and university course. He uses it on his way to demonstrating the basis for belief systems and the superiority of a morality based on the inherent value of the individual.

The differences between his action framework and that of Mises and Rothbard may be attributed to the difference between psychology and economics. But the similarities are striking, even though, to my knowledge, Peterson has not read Mises or Rothbard.

Earlier this year, Jordan Peterson began tweeting about an interest in Austrian economics, asking for suggestions for potential guests. 

Thankfully one name, in particular, got the attention of Dr. Peterson, Bob Murphy. Not only has Dr. Murphy long demonstrated himself to be one of the best educators of the Austrian tradition, but he has long been familiar with Peterson's own work. His excellent book Choice Cooperation Enterprise and Human Action also offers a great introduction to Misesian thought for a new audience.

In his most recent podcast, Jordan Peterson published his interview with Dr. Murphy, offering his audience a deep dive into the Misesian tradition. 

As Dr. Peterson begins his show, "I wanted to talk to you because I wanted a two-hour lecture in Austrian economics." 

Video can be found on YouTube. The podcast format is not currently published on his official website, can be found on most podcast platforms, such as Spotify.

Is Property Theft? | Dr Robert Murphy | The Jordan B. Peterson Podcast - S4: E43

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Compounding Shortfalls in Innovation

08/30/2021Hunter Hastings

Curt Carlson, the world’s leading authority on innovation and how to implement it, worries that the US is under-performing on this front – badly. 

On LinkedIn, he writes:

Almost all measures of innovative performance today are wanting.  Only 3% of patents recoup their investment; the rest are mostly waste that costs many tens of billions of dollars a year just in maintenance fees.  Only one in ten new venture-backed companies has any real success.  Most venture capitalists lose money, and 5% make 95% of the gains.  Only 20% of university tech-transfer programs break even, and those few are often the result of a new drug.  In our workshops with almost a thousand global teams from leading companies, universities, and government agencies, typically, only 25% of the projects under development would provide any meaningful new customer value if completed.  

This issue profoundly affects civilizational progress and quality of life. Innovation is value-creation and value-creation improves society for all.

Through innovation we address society’s grand challenges, create prosperity and jobs, and provide resources for social responsibility.  Consequently, one of society’s most critical opportunities is to improve our value-creation capabilities.  Improvements in value creation are exponential amplifiers of innovative performance.

He applies the term exponential in a carefully considered way. There is the opportunity for rapid, accelerated advance from where we are today to where we could be tomorrow. Problems can be solved quickly. Conditions we experience as disappointing or even dismal can become uplifting and exciting in a short period of time.

That is, if we are innovating and generating new value.

The opposite is also true, however. Compounding works in reverse. If we fall behind, the distance we have to go to recover becomes exponentially longer. If this year, we realize only 50% of our value creation potential, then next year or in the next relevant period, we’ll have 50% of the resources we would otherwise have had, and we’ll drop to 25% of potential, and so on and so on. The shortfall compounds and our level of performance declines exponentially.

Professor Per Bylund of Oklahoma State University has the same concern about our country’s economic under-performance. He gives a name to the gap between the value that’s actually created by entrepreneurial businesses and what could have been created: The Unrealized. In his book The Seen, The Unseen, And The Unrealized, he describes this value generation shortfall in economic terms, and attributes it to government regulation. Whether in the form of legislation or bureaucratic rule-making, regulation distorts the market, redirecting entrepreneurial creativity into channels favored by politicians and government departments, or curtailing it with enforcement rules, or prohibiting it entirely in some cases. The regulated economy simply can’t evolve and grow in the same way it would if unhampered.

The Unrealized is, similarly, a compounding problem. The number of regulations increases each year, so The Unrealized expands and grows each year. If the economy grew at only 50% of its potential in a base year, then the next year is constrained in the base from which it grows, and this negative compounding extends annually into the future, forever. Since regulation has been with us for a couple of centuries, the compounding of The Unrealized is incalculably high. We simply can’t imagine the dimensions of what could have been. 

Einstein famously said about compound interest that it “is the eighth wonder of the world. He who understands it, earns it…..he who doesn’t….pays it”.

Unsurprisingly, given the source, this is a very important observation. Compounding can work for us or against us. Saving and investing and re-investing can compound in our favor. Interacting more and more with smarter and smarter people can compound in our favor. Iterating a creative idea in critical forums can compound its innovativeness and applicability until it breaks into the market. Exercising and healthy eating every day can compound for us as we age, making us relatively more and more healthy than our age cohort and standard norms. 

The same is true on the negative side. As Einstein said, if we don’t earn compound interest, we pay it. If we get into debt, interest is working against us, especially if we borrow more and more. If we are not continuously engaged with other smart people and iterating our ideas with them, we are less and less likely to make a creative breakthrough. And if we permit ourselves to avoid fitness activities and if we eat an unhealthy diet every day, we are making things worse for ourselves at compounding rates. Every day we are a little less healthy and fit than we could have been – every daily sugar intake, or alcohol intake or cigarette smoke intake compounds, so that, every day, the impact of unfitness and bad diet is a little more harmful on our less-fit body than it would otherwise have been.

Curt Carlson and Per Bylund teach us to concern ourselves with the compounding of The Unrealized in value generation activities. We should bear this in mind – and, at the same time, make sure that compounding is working for us in our personal and family life.

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Powell Has Spoken

08/27/2021Robert Aro

Live at the 2021 Virtual Jackson Hole symposium, Federal Chair Jerome Powell addressed the public. Beginning with a nod to COVID and appreciation for front line workers, he quickly moved to an analysis of the economy:

Booming demand for goods and the strength and speed of the reopening have led to shortages and bottlenecks, leaving the COVID-constrained supply side unable to keep up.

We’ve been hearing about these dreaded bottlenecks for quite some time. Per Powell, these bottlenecks are creating elevated inflation in durable goods. Which is to say, it’s not the money supply or the way inflation is calculated that is to blame. Yet, the Fed has not provided the public with examples of what or where these bottlenecks are occurring, nor explained how this is actually measured.

He moved on to the event’s theme: Macroeconomic Policy in an Uneven Economy, mentioning how:

The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit.

This is nothing new. In fact, every unexpected downturn or recession hits those in the lowest poverty bracket hardest. They pay for the Fed’s intervention, funding corporate bailouts through taxes or currency debasement, while not having access to the new money such as the Fed’s trillion-dollar repo facilities.

Meanwhile, employment is still down. As stated:

Total employment is now 6 million below its February 2020 level, and 5 million of that shortfall is in the still-depressed service sector.

No one should be surprised this sector continues to suffer given the government’s lockdowns coupled with a concerted media effort encouraging everyone to stay indoors.

After noting the state of the economy, he moved to the ominous sub-title line of The Path Ahead: Inflation. According to the chair:

The rapid reopening of the economy has brought a sharp run-up in inflation.

It is actually quite disrespectful, both to the public and the field of economics, when the head of the Fed claims prices are rising due to the high speed of “reopening” the economy.  As to the trillions of dollars added to the Fed’s balance sheet, plus other government giveaway programs, and whether these could be contributing to the rise in prices, Powell remained silent.

Powell then touched on the Fed’s future tapering of asset purchases; but there wasn’t anything earth shattering nor any specific dates given. Some media sources are reporting that it is still expected to begin this year. According to CNBC Powell indicated:

…the central bank is likely to begin tapering before the end of the year.

Fedspeak is certainly open to interpretation. Powell then somewhat addressed interest rates:

The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.

Continuing, he says the Fed will:

...hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time.

Clearly, the Fed has no plans to raise rates any time soon. The future tapering will not be indicative of rate raising and rates will only be lifted when the Fed’s dual mandate is achieved to a sufficient degree as measured by the Fed itself.

In his speech, he should’ve at least acknowledged the nearly $28.7 trillion government debt (and counting) but perhaps it’s best that the Fed’s objectives are met first before tackling other issues... such as an exponentially growing national debt.

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Why Trade Embargoes So Often Fail

08/27/2021Peyton Gouzien

The most recent protests in Cuba against the current regime have once again brought us to a multi-sided debate on "what should be done" about Cuba. The Left claims that we should actually be emulating Cuba, praising it as a paradise with higher literacy rates and higher, life expectancy than Americans as if either is the end of all measuring prosperity, though will also say any downsides the nation has are due to harmful sanctions and embargoes. On the other, we have the American right advocating military and economic intervention into Cuba to “save” the Cuban people from their current regime with the most popular policy recommendations being more economic sanctions and embargoes. Both approaches are fundamentally wrong and are based on a lack of understanding of how embargoes and sanctions work—or I should say, don’t work.

The standard line on sanctions and embargoes from the left, right, and even some libertarians is that these policies restrict the trade of nations by essentially banning the export or import of their goods to their nation and for those more inclined to non-interventionism deprives the nations of necessary goods and starves them till their leaders give in to the demands of the nation imposing them. This assessment seems correct from a baseline theoretical analysis, but the reality shows a failure based on one concept and further demonstrated by empirical results.

The reason these policies fail to work is the same reason a cartel—a collection of companies (or states) agreeing to not compete in a market against each other in order to exercise monopolize power—fails. Cartels rely on the trust of each member to uphold the same policies of non-competition with each other. In the case of embargos and sanctions, in order to have a strong effect, the players would be every other nation in the world has to agree to also maintain these policies, something demonstrated time after time as impossible.

To demonstrate this let’s use Cuba’s biggest supporter in the 20th century, the USSR. During the Cold War, several embargoes and sanctions were placed on the nation by the United States and its allies and while it is obvious the USSR suffered, it was not because of these policies. Despite the intended goal of blocking off trade to the USSR, the nation was able to still import a wide variety of goods. The best example was the grain embargo imposed by the U.S. by President Carter in 1980. Instead of harming the USSR’s food production we actually saw relatively no harms to the nation and actually an increase in grain production and exporting. This was due to the USSR being able to circumvent the embargo by instead engaging in trade with nations like Argentina and Australia.

What the USSR example reveals most is that even close allies to the U.S. are not willing to follow them in embargos, as it would only hurt them. The potential for harm for other potential cartel members is partly why it is very difficult to enforce embargoes and sanctions.  

Cuba today is not an exception to this rule. A close, both in relations and geographically, ally of the United States currently trades and serves as a proxy for trade with the U.S. This would be Canada who has had a trade relationship with the nation since 1975 when the Organization of American States (OAS) lifted its sanctions on the nation. Almost every member of the organization, aside from the United States, engages in trade with Cuba despite the U.S.’s attempts to establish a cartel that would uphold its trade policies of sanctioning and embargo of the nation. The U.S. has in fact acted in a contrary attitude with the passage of Free Trade Agreements such as NAFTA. This again furthers the case that the United States can usually expect to encounter resistance and a lack of cooperation in forcing other nations to go along with embargos and sanctions, as they ask for others to take an economic loss for no economic gain and have the last resort of doubling down which sacrifices important economic and political relationships with our allies.

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At Jackson Hole, Don’t Forget about Rates

08/25/2021Robert Aro

This Friday marks one of the most important economic events of the year. But even Jackson Hole could not escape the threat of the latest variant, as the Kansas City Fed recently announced that due to an elevated covid risk, the event is to be held virtually.

The public is welcomed to tune in this Friday, August 27, at 10 a.m. EST via the Fed’s YouTube channel. It’s encouraged to watch. We should take interest in what they have planned for us. In fact, it’s the least we can do, since tax dollars and currency debasement fund such planning activities …

Started in 1978, the Kansas City Fed explains:

The Federal Reserve Bank of Kansas City’s Economic Policy Symposium in Jackson Hole, Wyo., is one of the longest-standing central banking conferences in the world. The event brings together economists, financial market participants, academics, U.S. government representatives and news media to discuss long-term policy issues of mutual concern.

When the wealthiest people in the country meet in seclusion in one of the wealthiest counties in America, it makes sense they’ll discuss ideas of mutual concern. However, judging by their repeated free market interventions, it cannot be said this includes a concern for the public.

Jackson Hole always includes a topic or theme. This year’s theme: Macroeconomic Policy in an Uneven Economy. Details regarding the topic have yet to be released. But the word “uneven” has a false connotation: it sounds like they have the ability to intervene in a way that will make the economy a more “even” place.

Talk of the Fed’s expected tapering, or slowing down their $120 billion–a-month bond purchases persist on news headlines. Reuters explains that Tuesday’s rise in the global equities and Treasury yields are partly due to investors who became

less worried the Federal Reserve was set to announce a timetable for tapering stimulus measures.

The Fed’s rising concerns over variants and their decision to hold the economic symposium virtually seem to portend the recovery is not going as planned; therefore the Fed might not reveal a date as to when the taper will begin.

While the question over the tapering is a good one, money supply is not the Fed’s only area of control: What about interest rates?

Interestingly enough, the August 1 to September 30, 2007, Jackson Hole meeting sheds some light on the future. The title theme was Housing, Housing Finance, and Monetary Policy. This was only a few months prior to the formal recession, and Ben Bernanke said in a speech:

[I]interest rates have risen from the low levels of a couple of years ago, we have seen a marked deterioration in the performance of nonprime mortgages.

At the time, the Fed’s 2007 effective federal funds rate hovered around 5 percent, while the “low levels” Bernanke refers to were in 2003 at around 1 percent. Today’s rate is only at 0.10 percent.

Ultimately, rates rose from the 2003 rates to the high in 2007, and eventually the stock and housing markets crashed. Whether the rising rates and the market crashes are related, and whether the Fed is to be blamed is a matter of perspective.

Yet, we cannot forget interest rates will have to be addressed, one day. The difficulty is in conceptualizing this when the last significant rate increase occurred nearly twenty years ago. Since then, there was only one small rate increase to just over 2 percent, just prior to this recession in 2019, oddly enough. Today with rates approaching 0 percent, even 2 percent begins to sound extreme, and few can fathom 5 percent.

Also consider that on this day in 2004, the US national debt was only $7.3 trillion and now it’s at $28.6 trillion; yet it seems no one has calculated what the cost of debt would be if rates were multiples higher than today’s rates. As for the stock market, interest rates, valuation of companies, and investment decisions will change significantly if we see higher rates in the future.

This year at (virtual) Jackson Hole, it would be nice if Powell spoke about the sustainability of artificially low rates and what this means in the decade ahead. Of course, the Fed could never address the issue and commit to keeping low rates for an indefinite period of time. But what about the public’s concern with not living in a state of perpetual asset bubbles, boom, busts, and bailouts? Or did that not make it onto the agenda?

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