Power & Market
Prominent economist and super successful textbook author Greg Mankiw writes:
I have a confession to make: I love the Federal Reserve. And I suspect that, in their heart of hearts, most other economists love the Federal Reserve, too.
But why this gushing profession of love by Mankiw for the Fed? Is it because the Fed provides valuable services to the U.S. economy? Mankiw's answer leaves this all-important question unaddressed:
The nation’s central bank employs about 20,000 Americans. They monitor the economy, develop analyses to help set monetary policy and regulate the banking system. None are paid the extraordinary salaries found at the nation’s private banks. But they do their jobs with solemnity and tenacity and without a whiff of scandal. And, most important, they do their jobs well.
Even the admittedly "unforced errors" that deepened the financial crisis "did not diminish [Mankiw's] love for our central bank." For people, "should not be judged by the standard of perfection. They should be judged by whether they are doing the best they can." On this score, Mankiw gives the Fed a "top grade." And what constitutes the Fed's success "as a public institution"? There are "two ingredients" to its success. First, the the Fed "aims 'to provide the nation with a safer, more flexible and more stable monetary and financial system.'” Note the emphasis I place on the the word "aims." Mankiw does not say something like "by and large, succeeds in attaining." It appears that maximum effort in pursuit of advertised goals rather than actual results achieved is the first criterion by which Mankiw evaluates the Fed. But Mankiw's theory of the Fed's value is even more clearly revealed in the second input to success he proposes:
The second ingredient to the Fed’s success are the talented people who dedicate their lives to it. Every year the Fed recruits new research assistants from top colleges and new staff economists from top Ph.D. programs in economics. Over the years, I have known many great students who have taken these jobs. For someone interested in economic policy, there is no better place to work.
Well, if your beloved public institution doesn't succeed in producing desired results . . . simply appeal to Ricardo's outmoded labor theory of value.
Suppose someone wanted to misrepresent a public policy to you. How could they do so most effectively? And who can help you resist?
It’s certainly a believable hypothetical. With two major parties who seem to disagree on everything, multiple intra-party fault-lines, and a plethora of interests who wish to turn laws and regulations in their favor, whipped together by a press in search of partisan scandal and ratings, it is hard to see how it could be otherwise. In fact, for almost every issue, it seems very likely that some, if not many, groups, will be tempted to promote their interests using techniques ranging along the spectrum from “putting one’s best foot forward” to bald-faced lies.
There are plenty of common political tricks that fall short of outright lying. For instance, one can bury desired changes in the paper avalanche of an omnibus bill, as in the Minnesota legislature’s recent attempt to sneak in enactment of the National Popular Vote project. Or one can pass vague legislation that passes the buck for what it will mean in practice to executive agencies and the courts. But such forms of subterfuge are not my interest here.
I wish to ask how people would misrepresent things in the open, rather than behind such political camouflage? As I warn my public policy students, the general principle is that people will lie to you in whatever areas you are most vulnerable.
If you are American, one of those weak spots is typically mathematics, and particularly statistics, which is why it earns its place of shame along with lies and damned lies. That is why the tricks for how to misrepresent statistics discussed in Darrell Huff’s How to Lie with Statistics still keep the book selling 65 years after its initial publication.
However, widespread ignorance goes deeper than the science of statistics itself. Very few people have a clear idea on what the data involved actually measures, under what assumptions and limitations, which can lead to careless and irresponsible usage. For instance, few people can articulate why both the employment and unemployment rates could go up at the same time, and which would be a more reliable economic indicator in such a case, when their names suggest it shouldn’t be possible.
Thomas Sowell , in his most recent book, Discrimination and Disparities, describes the problem as “overlooking simple but fundamental questions as to whether the numbers on which… analyses are based are in fact measuring what they seem to be measuring, or claim to be measuring,” which, in order to defend ourselves against misrepresentation, requires “much closer scrutiny at a fundamental level.” But far too few apply such careful, fundamental scrutiny.
However, there are a few people who do yeoman work in this area, providing valuable “insurance” against errors others would encourage us to make. They deserve our appreciation for toiling in that underserved area, and I would like to express thanks to several whose efforts I have particularly benefitted from.
Thomas Sowell is one such author who has provided a great deal of clarification over decades of prolific publication. For example, one common theme of his is the need to distinguish between what happens to a particular category of people (e.g., “the rich” or “the poor”), interpreted as a stable group, which lends itself to class-based conclusions, and the very different experiences of real people who move in an out of such categories over time, which upsets such analyses.
Discrimination and Disparities reiterates that theme from his earlier books. But my favorite illustration is his discussion of the famous Card and Krueger minimum wage study, which purported to overturn the conclusion that raising the minimum wage increases unemployment. It surveyed the same employers, asking how many employees they had before and after a minimum wage increase. The problem is that “you can only survey the survivors.” Anyone who went out of business, and the jobs that consequently disappeared, would not be included, so even if surveyed survivors did not reduce employment, many jobs invisible to their approach could still have been lost. To reinforce the image, he notes that a similar before-and-after survey of those who played Russian Roulette would show that no one was hurt, and cites a quip by George Stigler that if it had been used in a survey of American veterans in both 1940 and 1946, it would “prove” that “no solider was mortally wounded” during the war.
Another very prolific watchdog for statistical malfeasance is Mark J. Perry . He points out so many useful “red flags” in multiple outlets that I look forward to what is almost a one-a-day pleasure. A good example is his evisceration of “Equal Pay Day” discussions that attribute differences between median yearly incomes to unjustifiable discrimination against women “doing the same work as men.” He points out that the data fails to adjust for differences in “hours worked, marital status, number of children, education, occupation, number of years of continuous uninterrupted job experience, working conditions, work safety, workplace flexibility, family friendliness of the workplace, job security, and time spent commuting,” each of which would lead men to be paid more, on average.
Andrew Biggs is another stickler for statistical responsibility, particularly in areas connected to retirement security and retirement plans. For instance, in Forbes , he showed that a recent GAO report concluding that 48% of U.S. households aged 55 and over in 2016 “had no retirement savings” was far different from reality, as 72% of people had such savings plan, when those with traditional defined benefit pensions are counted, and 83% of married households had such savings when including those where only one had a retirement plan. Just those two changes massively changed the conclusions. And he pointed out other biases, as well.
These three people have each helped me understand measurement issues far better than before, enabling me to avoid errors that would have undermined my analyses of policy issues. I owe them thanks. But readers might also give them more attention, for similar “tutoring.” Many others have also been of use to me, and as I continue to learn, perhaps I can give a shout-out to others in the future, especially as this labor pool is still far too shallow. But mainly I wanted to put out a serious warning about ignorance not only of statistical applications and presentations, but also of the data that is often misused in reaching policy conclusions.
March 3 marked the bicentennial of Belgian-born philosopher/economist Gustave de Molinari’s birth. Based on self-ownership and the private property derived from it, he forcefully defended every form of liberty. No wonder Frederic Bastiat named Molinari his successor.
Remembering Molinari’s across-the-board defense of liberty is particularly necessary at a time Americans pay lip service to it, but constantly say “there ought to be a law” that restricts it.
His recognition that individual sovereignty is a far superior replacement for government sovereignty from the perspective of justice, respect for natural rights, and of effective social cooperation is worth revisiting on 200 years after his birthday.
Read the full article at The Orange County Register
Some of the French economists centered around the Journal des Economistes were elected officials. For example, Louis Wolowski was elected to the Assemblée Constitutionelle in 1848;1 so was juge de Paix Frédéric Bastiat. Decades earlier, Jean-Baptiste Say and Benjamin Constant were famously defending Classical Economics in the Tribunat where they opposed Napoleon Bonaparte. Bonaparte returned the favor and expelled both of them in 1804 and 1802 respectively.2
Unlike the aforementioned economists, Gustave De Molinari never was a politician himself. However, this does not mean that he never ran for office. He had briefly attempt to join the ranks of the liberal party in 1859.
Left or Right?
In his 1864 book review of De Molinari's Cours d'économie politique, Lord Acton points out the turbid relationship between the Liegeois-born economist and the Liberal Party: "[In] 1848, he returned to his own country, and finished his course of political economy at the Musée d'Industrie of Brussels, where, we believe, he has not been altogether well treated by the Liberal ministry. This gives a personal significance to his protest against the nomenclature of the two parties, which falsely implies that the one comprises all that is religious, and the other all that loves liberty, in Belgium".3
Indeed, De Molinari wasn't the keenest on political demarcations; in earlier writings, he had presented the fluidity between the nomenclature of liberal, religious, and even socialist party structures. Historian Roderick T. Long pointed out that De Molinari favored a collaboration with the French socialist party.4 According to him, both economists and socialists favored the same principles. In his Lettre aux socialistes (1848), the anonymous author (later identified as De Molinari) stressed that both economists and socialists favored a society in which justice was prevalent for every individual member. However, both groups used a different methodology. Economists thought of liberty and freedom as the necessary means to reach said goal, as history has shown them time and time again. Socialists, on the other hand, used statist recipes with taxes.
Blanc VS Coquelin
One place Molinari clashed with the socialists, however, and thus distinguished himself as a true supporter of laissez-faire, was in his opinions on banking.
While living in Paris, De Molinari must have read his friend Charles Coquelin's research on banks. Coquelin defended a free-market approach on banking; he preached the concept that the government should have no involvement in the role of banking. Rather, banks should be left alone. After empirical research on business cycles, Coquelin concluded that banking crises were the result of privileged monopolies and governmental regulation.5
Journalist and socialist Charles Potvin, however, opposed this vision: “Mr. De Molinari views align with the following principle. Legal persons should have the opportunity to gather themselves without governmental intervention. The role of the government should be limited to registration instead of active participation, isn’t it Mr. De Molinari? (Mr. De Molinari nods in agreement). If we follow Mr. De Molinari’s vision, wouldn’t priests and bankers run Belgium?6
Potvin’s opinion on banking changed over time — whilst always remaining in the realm of radical socialism. In his biography, historian Christophe De Spiegeleer argues that Potvin shows appreciation for the works of PJ Proudhon in his essays (Du Gouvernement de soi-même, La Banque Sociale).7 Proudhon proposes "la Banque du Peuple"; a company in which the people (ipse facto: the poorest individuals within a society) could borrow a lump sum of money without paying an extra fee. The poorest individuals were shareholders as well.8 Potvin praised these "mutualistic companies" in his magnum opus Du Gouvernement de Soi-Même (1877).
However, in his exchange with De Molinari, Charles Potvin outs himself as a disciple of socialist Louis Blanc. According to Blanc, the involvement of a government in the realm of banking was of the utmost importance. According to Potvin, spontaneous order and liberty would lead to anarchy in Belgium! For this particular reason, Louis Blanc claimed it necessary to seek government intervention and lift up the competition, in favor of a single, nationalized bank.9
"Pourquoi j’ai retiré ma candidature"
In a pamphlet (Pourquoi j'ai retiré ma candidature), written a couple of days after the fulminations of Potvin against Molinari, De Molinari announced the renunciation of his candidacy. In 1855, however, he had already predicted his fate within the party. In an article "Dialogue entre un électeur et un candidat," he criticized uninformed vocal minorities that forsake their own responsibilities. In the fictional dialogue, the voter expects politicians to take care of everything; protectionism, warfare, parish relief funds, subsidizing religion, ... To which the politician responds whether the voter would favor higher taxes. How would we fund these services? To which the voter responds: “How should I know? That’s up to you and that is why we elected you!”10
- 1. RAMBAUD, Jules, l’oeuvre économique de L. Wolowski, Paris, L. Larose & Forcel, 1882, 9-29.
- 2. MINART, Gérard, Entrepreneur et esprit d’entreprise. L’avant-gardisme de Jean-Baptiste SAY, Paris, l’Harmattan, 2013, 158-159.
- 3. ACTON, John Emerich Edward Dalberg, “Review of Gustave de Molinari’s Course of Political Economy (1855)”, The Home and Foreign Review, 4, 1864, 313.
- 4. LONG, Roderick T., “Rothbard’s “Left and Right”: Forty Years Later”, Mises Institute, 2006.
- 5. MALBRANQUE, Benoît, “Réformer les banques: les propositions originales de C. Coquelin”, Laissons Faire, 1, 2013, 20-24; DE NOUVION, Georges, Charles Coquelin. Sa vie et ses travaux, Paris, Institut Coppet, 2017 , 24-25.
- 6. "M[onsieur] De Molinari proclame ce principe: les personnes civiles ont le droit de se constituer sans l'intervention de l'Etat. [...] La personne civile vient au monde, et l'Etat enregistre [...], n'est ce pas M[onsieur de] Molinari? (De Molinari fait un signe d'approbation). La Belgique ne serait-il pas exposée à une double invasion de moines et des banquiers?"“Après l’autel le coffre-fort”, Le Bien Public, 6 juni 1859.
- 7. DE SPIEGELEER, Een blauwe progressist. Charles Potvin (1818-1902) en het liberaal-sociale denken van zijn generatie, Gand/Brussels, Liberaal Archief, 2011.
- 8. PROUDHON, Pierre-Joseph, “Banque du peuple: déclaration”, Le Peuple, 1849, 1-13.
- 9. CHARRUAUD, Benoît, Louis Blanc, la république au service du Socialisme, Unpublished PhD, Université Strasbourg III. Robert Schuman, 2008, 50.
- 10. Cela vous regarde. Nous ne vous nommons pas pour autre chose" DE MOLINARI, Gustave, “Dialogue entre un électeur et un candidat”, l’Economiste belge, 1855, 1.
I've been following Lew Rockwell's work pretty closely for more than 15 years, but there's a lot of good stuff I haven't heard before in this new interview between Tom Woods and Lew. He goes a little more deeply into some of his work with Ron Paul in Congress, and Lew apparently has a new book coming out soon, called Against the Left.
Mises Institute Associated Scholar has been named the BB&T Professor of Economic Freedom within the Johnson Center for Political Economy at Troy University. Dr. Manish, a former Mises Research Fellow, has been a member of the Troy faculty since 2012. His research focuses on Austrian economics, macroeconomic theory and development economics, and teaches a course on Advanced Austrian Economics for the university's Masters program.
His Mises Institute work can be found here.
Dr. Manish and his wife, Dr. Malavika Nair, are regular members of the Mises University faculty.
Donald Trump renewed his attacks on trade this week, announcing new tariffs with China and extending his steel and aluminum tariffs to previously exempted Europe. Since this is Trump, it’s certainly possible that this is another example of “maximum pressure” designed to get some sort of concession. Should this represent a genuine long-term embrace of protectionist trade policy though, American consumers will pay the price.
Of course none of this is surprising; it’s what he explicitly campaigned on. (Unfortunately he’s been more willing to deliver on these promises than his attacks on the Fed.) It’s worth pointing out, however, that Trump’s critics – though correct in their criticism of his tariffs – often over-romanticize the global view of free trade pre-Trump. Nothing illustrates this better than the reaction to Trump’s moves.
After all, for all the flowery talk of leaders like Xi and Merkel of their dedication to free trade, their reaction to Trump’s tariffs have been to push tariffs of their own. China has tailored their retaliation to impact Trump’s voter base, while European Commission President Jean-Claude Juncker has threatened to make American icons like blue jeans and bourbon victims in an escalating trade war. Their willingness, however, to respond to bad policy with more bad policy highlights the truly shallow grasp of the benefits of trade.
Just as it does not benefit a country to respond to a neighbor increasing its own taxes to follow suit, retaliating to a new US tariffs by implementing one of their own only serves to hurt their own citizens. This is why Austrians have long lauded the benefits of unilateral free trade, while acknowledging the long term goal is genuine global free trade among all. To quote Louis Rouanet:
Instead of a top-down promotion of “free trade” driven by supranational institutions, we should consider unilateral free trade as an important part of a liberal political agenda. Sir Robert Peel, when announcing the repeal of the Corn Laws in the House of Commons in 1846, brilliantly warned: “I trust the government ... will not resume the policy which they and we have found most inconvenient, namely the haggling with foreign countries about reciprocal concessions, instead of taking that independent course which we believe to be conducive to our own interests. ... Let, therefore, our commerce be as free as our institutions. Let us proclaim commerce free, and nation after nation will follow our example.”
Unilateral free trade is a boon for both parties involved in trade regardless of whether or not one of them continues to impose tariffs. For those engaged in unilateral free trade, free trade means they need to export less to import more. In other words, it makes the free traders richer.
Naturally the global reaction to Trump’s tariffs is as unsurprising as the tariffs themselves. After all, while Merkel may have saw herself as the defender of the “liberal world order,” what she and the “globalists” Trump loves to rail against was really a “neoliberal” status long departed from the ideas of true classical liberals like Ludwig von Mises. For them, and their preferred presidential candidate, the aim is not “free trade” but managed trade – and the differences there are significant.
Of course, that powerful governmental bodies are acting hypocritical to their stated values is the least surprising move of them all.
President Trump declared last week that the law enforcement should “take the guns first, go through due process second.” But the history of federal firearms enforcement shows that due process is often a mirage when federal bureaucrats drop their hammer. Before enacting sweeping new gun prohibitions, we should remember the collateral damage and constitutional absurdities from previous federal crackdowns.
Gun control advocates have called for prohibiting possession of AR-15 rifles — a ban that could create five million new felons overnight, since most owners would not meekly surrender their firearms at the nearest federal office. Others advocate outlawing all semi-automatic firearms — an edict first floated by the Clinton administration that would create tens of millions of new offenders.
But before vesting vast new power in federal enforcers, the record of the Alcohol, Tobacco and Firearms (ATF) agency must be considered. A 1982 Senate Subcommittee on the Constitution report on ATF concluded, "Enforcement tactics made possible by current firearms laws are constitutionally, legally, and practically reprehensible.” Outrageous abuses have continued to the present day. An analysis conducted for the University of Chicago found that ATF heavily targeted racial minorities in its entrapment operations. And across the nation, ATF has been caught using mentally handicapped individuals in sting operations.
Sweeping new firearms prohibitions would enable the feds to selectively target unpopular offenders. The biggest debacle resulting from prior such targeting occurred 25 years ago last week outside of Waco, Texas. The federal Alcohol Tobacco and Firearms (ATF) agency saw the Branch Davidians — a fringe Protestant group that quickly became maligned as a cult — as the perfect patsies for a high-profile raid that would make G-men look like heroes.