How the Feds Broke the Meat Industry

How the Feds Broke the Meat Industry

Government breaks things. Then it often rides in on a white horse promising to “fix” the very things it broke.

In the latest example of government claiming it will solve a problem it created to begin with, President Joe Biden has committed to fixing the rising cost of meat.

Overall, meat prices have climbed 16 percent over the last year. Beef prices are up 20.9 percent. Biden says the problem is a lack of competition in the meatpacking industry.

“Capitalism without competition isn’t capitalism—it’s exploitation,” Biden said.

According to a factsheet released by the Biden administration, four processing companies control 85 percent of the beef market. The largest four firms control 70 percent of the pork market and 54 percent of the poultry market.

The Biden plan is to distribute $1 billion in coronavirus relief funds to help independent meatpackers expand their businesses. According to the AP, the plan would also allocate funding to train workers in the industry and improve conditions. The administration would also  issue new rules for meatpackers and labeling requirements for being designated a “Product of USA.”

But a question remains—how did a few big corporations come to dominate the meatpacking industry? Biden and other supporters of federal intervention into the economy would have you believe it’s just the inevitable march of capitalism. Greedy corporations get bigger and bigger and swallow up the “little guy.” If you believe this narrative, high meat prices stem from corporate greed and the inherent evils of the free market.

But it wasn’t “capitalism” or the greedy corporations that caused this consolidation in the meatpacking industry. It was the federal government.

Congress broke the meat supply chain decades ago.

The Wholesome Meat Act of 1967 mandates meat must be slaughtered and processed at a federally inspected slaughterhouse, or in a facility inspected in a state with meat inspection laws at least as strict as federal requirements. Small processors found it difficult if not impossible to meet the federal requirements. The cost was simply too high. Of course, large corporations can bear regulatory costs. As a result, the meat processing industry went through massive consolidation after the enaction of this act.

Since the passage of the Wholesome Meat Act,  the number of slaughterhouses dropped from more than 10,000 to 2,766 in 2019. Today, instead of hundreds of companies processing meat, three corporations control virtually the entire industry.

Federal law also prohibits the interstate sale of custom processed meat—meat from an animal slaughtered and processed at a facility where an inspector is not required to be present to observe the slaughtering and conduct an ante mortem and post mortem inspection of the animal.

We constantly hear about supply chain issues due to the coronavirus pandemic. (More accurately, government response to the pandemic.) But the lack of adequate processing capacity due to consolidation was already causing supply issues back in 2015. A report by the Farm-to-Consumer Legal Defense Fund sounded the warning at that time.

“The bottleneck caused by the lack of slaughterhouses has frustrated small livestock operations in getting their products to market and has led to an inability to meet the overall demand for locally produced meat. The 1967 Act has been one of the worst laws ever passed for local food; what’s more, it was known from the beginning that the Act would have the effect it did.”

The impact on small meat processing businesses was apparent within years of the passage of the act. In 1971, the Small Business Administration (SBA) presented a paper to the United States Senate Select Committee on Small Business titled: “The Effects of the Wholesome Meat Act of 1967 upon Small Business—A Study of One Industry’s Economic Problems Resulting from Environmental-Consumer Legislation Prepared by the Small Business Administration.”  The paper warned that the cost of compliance would have adverse impacts on small-scale slaughterhouses and packing plants, saying “the Wholesome Meat Act was as much of a disaster for many small meat firms as a hurricane.”

[T]he meat industries are among the more competitive in the American economy. But the Wholesome Meat Act could lead to a significant diminution of competition. How many firms would have to shut down because they could no longer compete due to the new law? … Would the Wholesome Act lead, however unwittingly, to an undesirable increase in concentration in the meat industries? Questions such as these, highly fundamental questions, were barely raised during the legislative process.

It comes as no surprise that these regulations caused a massive consolidation of the meat processing industry. And it’s no surprise that this consolidation has led to supply chain breakdowns. Centralized systems are brittle systems. They lack redundancy. They lack escape valves. They are prone to fail under stress. This is true of supply chains, economies and governments.

In other words, this was entirely predictable.

But now Biden wants to fix what the federal government broke by throwing more money at it.

Here’s an idea: why not just do away with federal control?

Supporters of federal intervention will scream “Safety!” But if the Wholesome Meat Act was really about food safety, it doesn’t even deliver on its own terms.

By concentrating meat processing in relatively few facilities, the likelihood of widespread contamination increases. A single sick cow can infect thousands of pounds of beef in one of these corporate slaughterhouses. In a more diversified, decentralized system, outbreaks generally remain limited to small regions. Farm-to-Consumer Legal Defense report said, “The Wholesome Meat Act has not led to the production of safer meat today; there are more recalls than ever for positive pathogen tests in meat products.” You seldom saw nationwide recalls in the era of diversified meat processing.

More generally, states with “food freedom” laws that allow small producers to sell food outside of the established regulatory structure have not seen increases in foodborne illnesses. According to Forbes, representatives from health departments in Wyoming, North Dakota and Utah reported exactly zero outbreaks of foodborne illnesses connected to a business operating under a food freedom law. Meanwhile, “Last year, the Centers for Disease Control and Prevention investigated and advised the public on 24 multistate outbreaks of foodborne illness, the highest in over a decade, with federally regulated romaine lettuce, chicken salad, and even Honey Smacks Cereal all linked to outbreaks that hospitalized Americans.”

In a sense, Biden is correct—the U.S. needs more players in the meat industry. But the government created the problem and there is zero self-reflection or ownership of responsibility. Only promises to fix what the feds already broke.

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Twenty Facets of Freedom from Leonard Read

14 min agoGary Galles

In 2016, I published a book titled Lines of Liberty, which featured great quotations about liberty from those who had been active and important in promoting it. To this day, one of my favorite quotes in that book is from John Stuart Mill’s On Liberty: “The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it.”

For that reason, when Leonard Read opened his “Several Facets of Freedom,” Chapter 8 in his 1982 The Path of Duty—his last book—with that quote, it drew my attention instantly. And I found Read’s own opening lines an effective teaser to read more:

The quotation from Mill’s famed essay, On Liberty, published in 1859, captures the essence of freedom. But there are many facets or aspects of the subject that merit elaboration.

Since Leonard Read was always broadening our understanding of liberty, its antecedents, its implications, and its power to benefit all of society, directly and indirectly, it is worth giving his reflections some reflection of our own. So I have put together a top 20 list of my favorite passages from the chapter, dealing with liberty’s connections to knowledge, excellence, influence, merit, competition, justice and optimism.

  1. The recognition on the part of Socrates that…he knew he knew nothing--the first step toward wisdom--is, from the standpoint of human freedom and prosperity the most important recognition there is.
  1. Each of us has an infinitesimal bit of knowledge--limited expertise…When the market is free--no restrictions against production and exchange--the tiny bits of know-how possessed by millions of discrete individuals flow naturally and easily, contributing to the prosperity of each. This knowledge is in the market process itself, not in you or me or anyone else--the claims of the know-it-alls to the contrary notwithstanding.
  1. It is in freedom that one’s knowledge is put to best human use.
  1. It is not mere quantity of knowledge that counts, for even the most knowledgeable… has a mere glimpse of all that is to be known…excellence includes growth.
  1. When…the keynote…is excellence, freedom reigns!
  1. There is no action we take--good or bad--that fails to exert an influence on someone. Thus, the question: How influence others better to understand and explain the free society? The answer: Let anyone who would move mankind toward freedom first move himself!
  1. Never try to reform another; do not try to forcibly draw others toward your view. Instead, strive for that perfection of understanding and exposition which will cause them to do the reaching.
  1. He who wishes to exert a useful influence must…concentrate his energies on the creation of what is good. He must not demolish, but build.
  1. Through the better personal practice of freedom may we attract others to share its blessings.
  1. Merit, if it be genuine, cannot be concealed…those who are seeking light, the ones who really count—will find true merit. It cannot be hidden for long.
  1. History reveals that contemporaries see more the man than his merit…respect their merit.
  1. Many among us insist that man is born for cooperation, not competition—as if these were antagonistic to one another. Such people…they fail to realize that cooperation is only a dream in the absence of competition.
  1. Genuine competition implies rules, such as the rule of free entry. Free entry in any field of endeavor--the production of goods or the supplying of services or whatever--assures competition, each participant trying to excel.
  1. Free competition among suppliers results in cooperation with customers…When there is real competition among the bakers of bread, we customers decide whose bread we eat, that is, with whom we will cooperate.
  1. The goal of competition in the free market is to serve customers better, according to consumer choice. The alternative is coercion…And such a coercive society affords no incentive for self-improvement.
  1. When there is competition, there are always those out front, setting the pace, leading the way. The effect of this leadership? Others…are inspired to grow. Competition--trying to excel--is the origin of growth; it is the magnet that draws forth each man’s best in the practice of freedom!
  1. Government, the political arm or agent of society, can have no higher aim than justice for one and all alike.
  1. The Goddess of Justice is blindfolded; her concern is not with who you are but, rather, with how fairly and honestly one deals with one’s fellowmen.
  1. Justice conforms to such ideals as The Golden Rule [and] No special privilege for anyone; No violation of the right to the fruits of one’s own labor or the right to act creatively as one chooses.
  1. A person may vigorously denounce the bad while failing to see the good. This…fails to advance the good…faith that the right will prevail…advances the good.

Few people in history spent more of their lives thinking about and acting to advance liberty than Leonard Read, as befits the founder and long-time leader of the Granddaddy of libertarian think tanks. He saw liberty as vitally important to both our individual growth and our social advance, so he considered everything he could think of that had a bearing on, or relationship to, it. Those thoughts are worth thinking after Read, so that we too might grow in insight and wisdom into liberty and advance society with that growth.

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Is the "Resource" Curse Keeping Many Developing Nations Poor?

1 hour agoLipton Matthews

The impact of resources on national development has puzzled economists and political scientists for decades. Economic literature has noted that resource-rich countries conventionally fail to transform natural advantages into material prosperity. In the field of economics, this development is known as the resource curse. It has been asserted that resource abundance degrades the quality of institutions by emboldening elites to devote resources to capturing rents. Others argue that by reducing the state’s dependence on taxes, resource windfalls erode political accountability. 

The erosion of accountability is likely because windfalls minimize the need for tax revenues thereby diminishing the impetus to be accountable to citizens and implement reforms. Reliance on resources can also preclude economic diversification by crowding out manufacturing and the service sector. Another burden of the resource curse is that incentives are engendered for politicians to distribute privileges to major players in the economy at the expense of the broader economy.

A related problem is that resource windfalls cultivate a breeding ground for autocracies by bolstering the power of political elites. Several observers have concluded that oil wealth increases the durability of autocracies and impedes the transition to democracy. Furthermore, when autocrats exert control over economic resources, they also inherit the ability to use these resources to purchase support and consolidate their rule.

Michael L Ross in a detailed 2015 review of the resource curse published in the Annual Review of Political Science shows that during 1960-2008, there was an inverse association between democratic transitions and the level of a country’s oil income. Moreover, countries that transitioned early and retained democratic institutions like the Dominican Republic, Turkey, Portugal, and Spain had marginal or no oil. Though some countries with modest oil and gas managed to transition, no country with more reliance on oil and gas income than Mexico became democratic.

However, the best case studies of the resource curse have been provided by data-sets examining African countries. South Africa is featured prominently in the literature. In the 2013 article, “The forgotten Resource Curse: South Africa’s poor experience with mineral extraction,” Ainsley D Elbra opines that South Africa’s experience not only aligns with the resource curse literature but is amplified since the country is plagued by entrenched poverty and inequalities linked to a rentier state.

Indeed, the scenario identified in South Africa is typical for African countries. In Sub-Saharan Africa resource abundance is related to rampant corruption, low economic growth, and inefficient bureaucracies, according to research. Due to avenues for pilfering, politicians have a reduced incentive to inhibit corruption by enhancing the efficiency of government.

But there is no reason to believe that resources will forestall economic growth. Addisu Lashitew and Erik Werker in a 2020 paper using the examples of Canada and the Republic of Congo illustrate that equally endowed countries can pursue divergent paths. Despite similar levels of resource endowment, the contribution of resources to GDP is substantially larger in Congo (42.3 percent), in comparison to Canada (2.3 percent). The adverse effects of resources are more pervasive in the Congo considering that its economy is dependent on resources, whereas Canada’s economy is diverse, notwithstanding resource abundance. The authors contend that the channels through which resources hinder institutional change are likely to be weaker in diverse economies. When economies are diverse there is less scope for players in resource sectors to lobby for initiatives that block institutional innovations thus diminishing opportunities for rent-seeking.

The contrasting fortunes of Canada and Congo suggest that institutions are crucial in explaining income disparities across countries. Although the evidence indicates that resources induce perverse incentives - high quality institutions can tame the resource curse. One study finds that in Africa when countries are besotted by corruption, and limited institutional capacity, resources appear to be a curse, instead of a blessing. Yet as institutions upgrade, resources transition from a curse into a blessing. Essentially, increased accountability and constraints on the political class depress conditions for the emergence of a rentier state.

For example, Naazneen H Barma in a comparative study of countries affected by the resource-curse recounts how Timor-Leste adopted new practices to combat the resource curse: “Partly due to the extensive international state-building effort there, the Timorese government decided upon petroleum sector institutions and policies explicitly intended to mitigate the resource curse…The centrepiece of Timor-Leste's institutional architecture in the petroleum sector is its Petroleum Fund, to which all petroleum revenues are directed, without exception. The Petroleum Fund Law establishes the concept of Estimated Sustainable Income (ESI), a principle intended to ensure intergenerational saving of the country's windfall income stream.”

Additionally, relating the issue to an American context Justin Callais declares that unlike Texas, Louisiana is languishing from a regional resource curse as a result of differences in institutional quality. Texas has a high EFNA score, ranks ninth on the net entrepreneurial productivity index, and demands licenses for just 34 of 102 lower-income occupations. Callais similarly avers that Louisiana’s economy is inferior because “Texas provides its citizens with alternative opportunities, while Louisiana’s environment is such that it necessarily must be dependent on oil.”

He further attributes Louisiana’s subpar economic performance to the legacy of the civil law: “Civil law tends to concentrate power to a centralized government. In France, this was chosen as a tradeoff in favor of dictatorship as a means of lowering disorder… What this means for Louisiana, and other transplant areas more generally, is that centralized control lead to ineffective governance and corruption. Through corruption, more authoritarian regimes were able to take advantage of their resource abundance. This abundance was good for those in power, yet lowered opportunities for the economy as a whole to invest and produce in alternative industries.”

Based on the data explored, we conclude that resource abundance can either result in stagnation or prosperity. However, the pertinent fact is that the potential for resources to foster growth is contingent on the right interplay of institutions and policies. Lacking an appropriate institutional framework resource-abundance will lead to dismal economic outcomes

When commenting, please post a concise, civil, and informative comment. Full comment policy here

Is the "Resource" Curse Keeping Many Developing Nations Poor?

1 hour agoLipton Matthews

The impact of resources on national development has puzzled economists and political scientists for decades. Economic literature has noted that resource-rich countries conventionally fail to transform natural advantages into material prosperity. In the field of economics, this development is known as the resource curse. It has been asserted that resource abundance degrades the quality of institutions by emboldening elites to devote resources to capturing rents. Others argue that by reducing the state’s dependence on taxes, resource windfalls erode political accountability. 

The erosion of accountability is likely because windfalls minimize the need for tax revenues thereby diminishing the impetus to be accountable to citizens and implement reforms. Reliance on resources can also preclude economic diversification by crowding out manufacturing and the service sector. Another burden of the resource curse is that incentives are engendered for politicians to distribute privileges to major players in the economy at the expense of the broader economy.

A related problem is that resource windfalls cultivate a breeding ground for autocracies by bolstering the power of political elites. Several observers have concluded that oil wealth increases the durability of autocracies and impedes the transition to democracy. Furthermore, when autocrats exert control over economic resources, they also inherit the ability to use these resources to purchase support and consolidate their rule.

Michael L Ross in a detailed 2015 review of the resource curse published in the Annual Review of Political Science shows that during 1960-2008, there was an inverse association between democratic transitions and the level of a country’s oil income. Moreover, countries that transitioned early and retained democratic institutions like the Dominican Republic, Turkey, Portugal, and Spain had marginal or no oil. Though some countries with modest oil and gas managed to transition, no country with more reliance on oil and gas income than Mexico became democratic.

However, the best case studies of the resource curse have been provided by data-sets examining African countries. South Africa is featured prominently in the literature. In the 2013 article, “The forgotten Resource Curse: South Africa’s poor experience with mineral extraction,” Ainsley D Elbra opines that South Africa’s experience not only aligns with the resource curse literature but is amplified since the country is plagued by entrenched poverty and inequalities linked to a rentier state.

Indeed, the scenario identified in South Africa is typical for African countries. In Sub-Saharan Africa resource abundance is related to rampant corruption, low economic growth, and inefficient bureaucracies, according to research. Due to avenues for pilfering, politicians have a reduced incentive to inhibit corruption by enhancing the efficiency of government.

But there is no reason to believe that resources will forestall economic growth. Addisu Lashitew and Erik Werker in a 2020 paper using the examples of Canada and the Republic of Congo illustrate that equally endowed countries can pursue divergent paths. Despite similar levels of resource endowment, the contribution of resources to GDP is substantially larger in Congo (42.3 percent), in comparison to Canada (2.3 percent). The adverse effects of resources are more pervasive in the Congo considering that its economy is dependent on resources, whereas Canada’s economy is diverse, notwithstanding resource abundance. The authors contend that the channels through which resources hinder institutional change are likely to be weaker in diverse economies. When economies are diverse there is less scope for players in resource sectors to lobby for initiatives that block institutional innovations thus diminishing opportunities for rent-seeking.

The contrasting fortunes of Canada and Congo suggest that institutions are crucial in explaining income disparities across countries. Although the evidence indicates that resources induce perverse incentives - high quality institutions can tame the resource curse. One study finds that in Africa when countries are besotted by corruption, and limited institutional capacity, resources appear to be a curse, instead of a blessing. Yet as institutions upgrade, resources transition from a curse into a blessing. Essentially, increased accountability and constraints on the political class depress conditions for the emergence of a rentier state.

For example, Naazneen H Barma in a comparative study of countries affected by the resource-curse recounts how Timor-Leste adopted new practices to combat the resource curse: “Partly due to the extensive international state-building effort there, the Timorese government decided upon petroleum sector institutions and policies explicitly intended to mitigate the resource curse…The centrepiece of Timor-Leste's institutional architecture in the petroleum sector is its Petroleum Fund, to which all petroleum revenues are directed, without exception. The Petroleum Fund Law establishes the concept of Estimated Sustainable Income (ESI), a principle intended to ensure intergenerational saving of the country's windfall income stream.”

Additionally, relating the issue to an American context Justin Callais declares that unlike Texas, Louisiana is languishing from a regional resource curse as a result of differences in institutional quality. Texas has a high EFNA score, ranks ninth on the net entrepreneurial productivity index, and demands licenses for just 34 of 102 lower-income occupations. Callais similarly avers that Louisiana’s economy is inferior because “Texas provides its citizens with alternative opportunities, while Louisiana’s environment is such that it necessarily must be dependent on oil.”

He further attributes Louisiana’s subpar economic performance to the legacy of the civil law: “Civil law tends to concentrate power to a centralized government. In France, this was chosen as a tradeoff in favor of dictatorship as a means of lowering disorder… What this means for Louisiana, and other transplant areas more generally, is that centralized control lead to ineffective governance and corruption. Through corruption, more authoritarian regimes were able to take advantage of their resource abundance. This abundance was good for those in power, yet lowered opportunities for the economy as a whole to invest and produce in alternative industries.”

Based on the data explored, we conclude that resource abundance can either result in stagnation or prosperity. However, the pertinent fact is that the potential for resources to foster growth is contingent on the right interplay of institutions and policies. Lacking an appropriate institutional framework resource-abundance will lead to dismal economic outcomes

When commenting, please post a concise, civil, and informative comment. Full comment policy here

The Billion Dollar Board

01/18/2022Robert Aro

The Federal Reserve currently has a board composed of five people. At $970 million spent on board expenditures in 2021, this equates to an average cost of $194 million per each Governor. Isn’t this completely incomprehensible, and something the mainstream media or Congress should inquire about next time they meet with the Fed?

Normally board expenses are allocated for coffee and donuts, maybe a luncheon; but at America’s central bank, there seems to be much more that has yet to surface. On Friday the Fed mentioned their board expenses in the press release regarding expenses and transfer to treasury for the year.

…$970 million for Board expenditures…

Audited financial statements won’t be complete for a few months. But if 2021 was anything like 2020 or 2019, the actual number will surpass $1 billion. Reason being, Board of Governors operating expenses are included with Currency Costs, as seen on the prior year’s statement. The figure was $1.78 billion.

There is a glaring problem here. Board of Governors operating expenses, like Currency Costs, have absolutely no further disclosure on the financial statements. Other than the auditor, members of the board, and whomever does the accounting, no one knows where the nearly $1 billion has been spent. It wouldn’t take much collusion if funds were allocated to buy a Ferrari or a few Bitcoins for a board member. Not to say this is what has happened, but if this did happen, the public would never know.

It really is the case of trusting the Fed. Yet nothing in the Fed’s history shows it can be trusted, with questionable trading activities being a recent example where their credibility was called into question.

Typically, important items are given notes at the back of the financial statements, where the figures are explained in greater detail. However, this is not the case with Board of Governor expenses. Anyone familiar with the audit process knows that a $970 million expense, for an entity holding assets approaching $9 trillion, likely means the board expenses are not considered a material line item. Meaning, the balance could go completely under the radar or hardly examined by the auditor.

Of course, the $970 million is just one of the various costs required to run the Federal Reserve. Other notable expenses include:

$1.0 billion for the costs related to producing, issuing, and retiring currency… and $628 million to fund the operations of the Consumer Financial Protection Bureau.

And my personal favorite, to the stockholders of the America’s Central Bank:

Statutory dividends totaled $583 million in 2021.

This was only some of the costs. More will be offered upon release of the 2021 statements. Still, given the various opportunities members of Congress, or the media have to engage in public discourse over monetary policy, it would be nice if someone were to inquire just what exactly these board expenses are. Even worse, it would take nothing more than a small change to legislation or request by Congress to force the Fed to hand over their general ledger or other disclosure. There need be no requirement for any new public audit or other rigmarole. The Fed simply needs to provide the same information they give to the auditor (i.e., a general ledger, or a list of all the transactions that comprise the $970 million in expenses), and let the public look into the matter.

If the Fed is supposed to operate for the good of the public, or in the public’s interest, there should be no qualm granting the public access to such information. It is definitely not in the public’s interest to be left in the dark over such matters, especially when the public funds the Fed. For a trillion dollar entity with a currency monopoly of the USD, more should be done to find out what exactly it is they do with all this money, specifically, what exactly has the board bought for $970 million.

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Biden’s Fed Nominations

01/15/2022Robert Aro

Should sex or race play a role in hiring decisions at the Federal Reserve?

Consider the alleged problem in which the mainstream media, economists and Congress want your focus, courtesy of Reuters:

Currently, the Fed's board has only five members, all white and three of whom are men.

In 2022, one would think there’s something inherently wrong about this. The message being that if more women or persons of color were to helm America’s central bank, things would be better for the economy. The rationale behind the diversity push is not explained. The assumption is that a more (physically) diverse Fed is best.

How heavily diversity inclusion played into Biden’s nominations cannot be measured. He nominated three people; two being women, two African-American. If his nominations are confirmed:

Biden's picks would mean the seven-member Board of Governors would include four women, also a first.

Sharing his elation, Harvard economic professor Larry Katz said “it’s clearly a changing of the guard” and:

This is a "path-breaking new set of nominees who will bring important perspectives and representation to the board."

Meeting the candidates, there is former Fed Governor Sarah Bloom Raskin:

…who spent four years as a Fed governor before being tapped as a deputy Treasury secretary from 2014 to 2017, is expected to bring tougher oversight to bear on Wall Street…

Unlike Raskin, an already high ranking member of the system, the other two candidates are not. Lisa Cook is an economics professor from Michigan State and Philip Jefferson, a professor at Davidson College in North Carolina.

Cook has written extensively about the economic consequences of racial disparities and gender inequality, and growing up lived through the violence of school desegregation in the U.S. South. Jefferson has written extensively on wages, poverty and income distribution.

Whether by happenstance or grand design, the problem with emphasizing sex or race obscures the need to fill a board based on competencies.

If the Fed was composed of 4 women and 3 men, but they were schooled in the Neoclassical tradition, one could say they are diverse in appearance, but intellectually similar. This is problematic because without diversity of opinions or challenges to ideas, improvement to monetary policy cannot be expected. The belief that the Fed should manage the money supply and interest rates would continue to go unquestioned. The economic booms and busts this causes would continue indefinitely.

Contrast this to a homogenous board. A Fed composed of 7 women or men, or 7 whites or blacks, yet 3 were Austrian and 4 Neoclassical economists, would be an astounding difference. The public would be privy to one of the most splendid economic debates of all-time, even if only witnessed through interviews and meeting minutes. Nonetheless, there at least would exist the possibility that economic change could be realized from within.

Unfortunately, the importance of intellectual diversity garners little to no attention. The idea that even one person who possesses a basic understanding of the free market, liberty or freedom could ever be welcomed into the Board of Governors remains little more than an unattainable dream. Should the Federal Reserve have a 7 member board, hailing from 7 different races, yet none understand Austrian economics, then the next 100 years of monetary policy will look a lot like the last 100… or economic collapse will occur, whichever comes first.

 

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The Uniparty Can’t Solve Inflation. Here’s How Populists Can.

01/14/2022Tho Bishop

Price inflation is the highest its been since 1982. Real wages are plummeting. Joe Biden’s approval ratings are now on par with George W. Bush’s after both the Iraq War, the financial crisis, and eight years of Jon Stewart. This is with the benefit of Kim family–level devotion from the corporate press, Big Tech, and almost every pop culture figure.

In this case, correlation is causation. Inflation has now topped covid as the greatest concern of Americans.

As history shows, this shouldn’t be surprising. While modern politicians have bought into the myth that monetary policy is something that should be left to a technocratic elite, money issues have long been a motivating issue for populist causes. There is no more “kitchen table” issue than the daily reminder that your paycheck buys less than it did last year.

The political benefactors of inflation are obvious: anyone running against Joe Biden. Twenty twenty-two will be a year where many talentless Republican political consultants will be able to ride a red wave and claim a victory they will base an entire career around. Unfortunately, the Republican Party is as culpable in America’s inflationary crisis as Joe Biden. We will see if anyone in DC catches the irony when the majority of Republican senators end up endorsing another term for Jay Powell.

This gets to the core of the problem. As we see inflation rise as America’s most pressing political issue, we have a political system completely unprepared to deal with it.

After all, few in Washington even know what the underlying cause of inflation is. It’s not port capacity, and it’s not greedy corporations. It’s not simply about progressives’ aims to price out fossil fuels or the price tag of any one specific spending bill.

No, the cause of inflation is the arrogance of modern economic PhDs. It is the consequence of rendering money into a tool of the state, a power which has been abused to plunder from the people so that politicians can spend freely. It is an era of monetary hedonism, maintained by an institution that has for over a decade now consistently failed by its own measure. The fact this system has lasted fifty years is in large part because most of the world’s central banks have engaged in similar—if not even more reckless—policies to the Fed.

Ivy League universities are just as capable of infecting the world as any Chinese laboratory.

Unfortunately, the GOP has been defined by its complete disinterest in rooting out institutional malfeasance. Abolishing a federal agency is a bumper sticker Republicans use for a campaign fundraiser, not a political goal. Any attempts to push for any meaningful reform to the Federal Reserve will be treated as a threat to the entire global financial system, and Republicans will cave—just as they voted to bail out Mexico in the ’90s, just as they voted to bail out Wall Street in ’08, just as they repeatedly cave to debt ceilings and government shutdowns.

If there is no political solution to the Fed, does it mean there are no possible remedies to help protect average Americans from the inevitable monetary crisis?

No. The answer to America’s inflation issue is to empower citizens to save in alternative currencies. Just as Republicans have found school choice easier to push than abolishing the Department of Education, monetary choice offers a policy approach that doesn’t require an all-out assault on a powerful institution with a well-paid army of propagandists.

This approach to the Fed was something promoted strongly by Ron Paul during his congressional career. The most significant component of his Free Competition in Currency Act was the elimination of taxes on gold and silver—something that could be updated to include cryptocurrency. If the only major policy wins Republicans are capable of having in DC are tax cuts, these would technically qualify.

Abolishing these taxes would eliminate one of the state’s most powerful tools for forcing the dollar on its citizens. If Americans can freely move their wealth from the control of the Fed and into nonpolitical assets, they will have real protection against the long-term consequences of inflation. Even better, this will undermine Washington’s concerted efforts to weaponize the banking system against political dissidents.

Most importantly, though, it would be a tax cut that would immediately redistribute wealth away from Wall Street and into the pockets of average Americans. As such, it is an ideal policy aim for the growing populist Right.

After all, if the goal of a political movement is to oust a powerful cabal of neoliberal globalist oligarchs, success is going to depend on achieving political victories that don’t only weaken your enemies but enrich your allies. Progressives and authoritarians are overrepresented in the halls of an increasingly woke Wall Street, while regime skeptics are overrepresented in crypto and among those who buy gold.

As in the past, there is the opportunity for the current inflation crisis to radically transform American politics. As the nation continues to lose trust in institutions, and as a new generation of populist Republicans grow their numbers in the party, there is an opportunity to deliver a major blow against the financial class that has taken over the global economy.

Is the current generation of right-wing populists prepared to listen to Ron Paul and embrace a Rothbardian Right?

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End Legal Tender Laws

01/14/2022Patrick Barron

Mention the term "legal tender" in polite company and most people will resemble a deer in the headlights. In simple terms legal tender is a kind of money a creditor cannot refuse in discharge of a debt due to him in the money issued by government. This is a legal designation for government-issued money—usually fiat money, nowadays—with special status. And although legal tender laws do not force consumers and merchants to use the “official” money, this money comes to be highly favored. Thus, here in America we buy and sell using dollars. In the United Kingdom, the British Pound is legal tender. In Japan, it is the Yen. You get the idea. It isn't impossible to use monies other than legal tender, but using something else is often more akin to private, off the books, barter. For example, perhaps I want to buy my neighbor's used lawn mower. I have some British Pounds left over from my last trip. My neighbor is planning a trip to the UK. He agrees to sell me his used lawn mower for some of my British Pounds. However, my neighbor would still legally have to pay his taxes in dollars and his credits would likely still demand dollars. So, dollars will be preferred for nearly all transactions.

Now, all this may sound perfectly reasonable, but legal tender laws present a huge opportunity for those who monopolize its production to manipulate the currency, primarily to allow for increased government spending. Governments suck resources out of the economy by bypassing the natural constraints of seeking a tax increase, always politically unpopular, or borrowing honestly in the bond market, which will drive up interest rates. Government by the people is thwarted, and the increase in the money supply causes vast harm to the economy.

Why Repeal Legal Tender Laws?

Naturally, advocates of eliminating legal tender laws have an obligation to convince the public that it's the right thing to do. Why would any nation, especially the US, want to use any medium of exchange other than the dollar? Simply put, debasing the dollar allows government to steal from the people. The government prints money out of thin air to balance its ever expanding budget. This leads to vast and dire economic consequences, such as higher prices, boom/bust credit cycles, and transfers of wealth from the early receivers of the new money to the later receivers of the new money. This is the Cantillon Effect, as described by Emile Woolf in his latest essay.

The Path to a Better Money

The next question that the public may ask is what would replace the dollar. The answer is that the dollar would not necessarily be replaced, but it would have to compete for the public's patronage in a free monetary market. It would have to compete not only with other national currencies but also with recently created media of exchange, such as bitcoin and other cryptocurrencies. In addition, we would expect that commodities such as gold and silver would regain some significant part of the market, especially since these commodities have been used as media of exchange for thousands of years until the recent experiments with fiat national currencies protected by legal tender laws.

Alasdair Macleod of Goldmoney.com has explained why crypto currencies are not suitable as alternative mediums of exchange, although the distributed ledger technology may have applications in a sound monetary regime. Rather, it is most probable that gold and silver would regain their prominence. There is a reason that the term "gold standard" is still used when describing something that is of the highest quality. There are many advantages to gold as a medium of exchange, but the most important are its universal acceptance by people of every walk of life all over the world, the fact that it cannot be counterfeited, and that it is rare. Gold specie itself could be exchanged by private individuals to satisfy major purchases, but for every day transactions the public would find it advantageous to rely upon a trusted third party to safe keep the gold and make it redeemable upon demand through any of the modern methods of money transfer, such as paper check, paper certificates, and digital means. Of course, the government itself could offer "gold dollars." After all, it claims to have over eight thousand tons of gold in its vaults. But government's track record for issuing more receipts for real money, gold and/or silver, than it has in its vaults probably would preclude it from gaining the public's acceptance. More likely, major banks would issue their own gold backed money. The banks could gain acceptance in the market because they would be subject to ordinary commercial law that describes a "bailment." A bailment is a transaction in which someone takes custody but not ownership of a good for the benefit of another. When we take a suit to the dry cleaners, we have entered a bailment agreement. The dry cleaning establishment does not own our suit. It takes temporary custody of it. Likewise when we check a coat at the theater or restaurant. If the dry cleaning establishment sells our suit or the restaurant gives our coat to another party, we can sue for damages and possibly bring criminal charges. Therefore, one's gold dollar account at a major bank must be legally redeemable in specie upon demand. If the bank does not have the gold, the customer can take it to court on a charge of fraud. Even the bank officials and owners could be charged with a crime. Try doing this with the government!

The Consequences

Just as a better mousetrap drives less effective ones out of the market, better money will drive out bad money. Privately issued money will gain more acceptance over time as the public learns that it can trust the issuers not to issue more receipts than specie held in reserve. Not so with government money. Once the public's trust has been lost, it will be impossible for government to regain it in the face of honest competition. It is most likely that bank issued fiduciary media (technically the real "money" is gold or silver in its vault) will be used first for transactions among banks, bond merchants, and large companies. But over time the public will learn that modern electronic money transfer methods are just as reliable for retail use. Then we can expect competition by the big banks to spread rather quickly. Eventually, government's fiat money will be abandoned for whatever one can get in, say, gold backed Goldmoney.comDollars, CitibankDollars, BankAmeriDollars, DeutscheMarks, BarclayPounds, or the like.

The Necessity of Financial Truth

With the government no longer able to print money to satisfy its profligate spending, the reckoning will have arrived. Let us not believe that a reckoning is avoidable. It is not. Nor should we wish it to be. To continue to print money in massive amounts, as the government does now, will lead to a financial and economic collapse. Would we want our doctor to tell us that all is well when his tests say otherwise? Would we want him to recalibrate his thermometer, blood pressure gauges, etc. so that they gave false indications in order that we could continue an unhealthy lifestyle right up to the point of collapse? Of course not. Yet this is a consequence of fiat money; i.e., the true state of the nation's financial and economic health is hidden. On the other hand, sound money reveals the true state of our financial affairs, both private and public, so that we do not unwittingly destroy capital and/or make promises that cannot be met. Furthermore, let us not give false promises that everyone will be spared real hardship in a return to sound money. Those who have relied upon the government to pay their bills will find that not all bills will be paid as in the past.

Real statesmanship will be required to cut government spending and explain the reasons to the public. The real villains will not be those who pull the world back from the financial and economic precipice but those who spent us into this mess in the first place--the Keynesian economists, the Modern Monetary Theorists, the Socialists, and especially the feckless politicians who swallowed the impossible siren songs of these charlatans and forced them on the public in order to buy votes by promising the moon. Let us have the courage to demand the truth, no matter how unpalatable it may be. Eliminating legal tender laws will set the wheels of monetary and economic reform in motion.

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The Reds Are Right About Assange

The Chinese communists are hoisting the U.S. government on its own petard, at least with respect to Julian Assange, the Australian citizen who, with WikiLeaks, disclosed war crimes committed by the U.S. national-security establishment.

For decades stretching back to the Cold War, U.S. officials have reveled in leveling condemnations and criticisms of Red China for its human-rights abuses and denial of civil liberties.

What has always amazed me is that the Chinese haven’t responded by pointing out the rank hypocrisy of the U.S. government, given the horrific human-rights abuses and denial of civil liberties long exercised by the Pentagon, the CIA, and the NSA, especially with their assassination program, torture program, kidnapping program, indefinite detention, denial of speedy trial, denial of trial by jury, and secret mass surveillance.

That’s all changed with the case of Julian Assange. The Reds are no longer silent. They are going on the attack with condemnations and criticisms of the U.S. government with respect to Assange. 

Take, for example, this video presentation by Yonden Lhatoo, the chief news editor of the South China Morning Post. It is entitled “The Insufferable Hypocrisy of Western Governments Hell-Bent on Destroying Julian Assange.” It’s worth watching. Lhatoo skewers U.S. and British officials for their persecution, prosecution, and mistreatment of Assange for telling the truth about war crimes committed by the U.S. national-security state.

Now, mind you, as a Hong Kong media outlet, the South China Morning Post is not technically owned by Red China’s communist regime. But with the way things are going in Hong Kong, it is a virtual certainty that the Morning Post is being closely monitored, if not indirectly controlled, by the communist regime. In fact, according to Wikipedia, “Since the change of ownership in 2016, critics including The New York TimesDer Spiegel and The Atlantic have alleged that the paper is on a mission to promote China‘s soft power abroad. According to critics, it is moving away from independent journalism and pioneering a new form of ‘propaganda.’”

Lhatoo points out that if Assange had been a Chinese citizen who had disclosed truthful evidence of war crimes committed by China, U.S. and British officials would be hailing him as a courageous hero, one who was deserving of the Nobel Prize. It is an excellent point, one that is indisputable. 

Sadly, what the Reds are saying about U.S. hypocrisy is absolutely correct. What amazes me is that they haven’t yet, as far as I know, pointed to the Pentagon/CIA torture and prison center at Guantanamo Bay, Cuba, which could easily have been modeled on similar structures in communist countries. 

It’s pretty sad when the communists are condemning and criticizing the U.S. government for hypocrisy when it comes to human-rights abuses and civil liberties. It’s even sadder when they are right, especially in the case of Julian Assange. 

Reprinted from Jacob Hornberger's Blog.

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Some Secession Basics

01/13/2022John M. Taylor

"If any State in the Union will declare that it prefers ‘separation’ over ‘union,’ "I have no hesitation in saying, 'let us separate.'" 1

~ Thomas Jefferson

In 1998, Russian Professor Igor Panarin, former KGB analyst, lecturer, and writer tied to Russia’s Foreign Ministry, predicted the economic and moral collapse of these United States, leading to eventual civil war and breakup by 2010. His predictions appeared in The Wall Street Journal and other publications. Of course, to this date, no such separation has come to pass. However, with the lingering 2020 election controversies (thousands of votes mysteriously appearing early on November 4th, hundreds signing sworn affidavits attesting to election fraud and the near impossibility that any of these accusations will ever be examined, questionable voting machines, etc.), various assaults on individual rights, increased centralization of government power, Marxist indoctrination within the education system, and other factors, some in Texas and other States have openly talked about secession.

After considerable bloodshed, the Thirteen Original Colonies seceded from the British Empire. Post-Revolutionary War, Britain and these “United States” signed the 1783 Treaty of Paris, which stated: “His Britannic Majesty acknowledges the said United States, viz., New Hampshire, Massachusetts Bay, Rhode Island and Providence Plantations, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Virginia, North Carolina, South Carolina, and Georgia, to be free, sovereign, and independent States.”2 Furthermore, “In 1781, the original thirteen States entered into a ‘Confederation’, and drew up ‘Articles’, one of which said: ‘Each State retains its sovereignty, freedom and independence, and every power, jurisdiction, and right which is not by this Confederation expressly delegated to the United States.’”3The States have never relinquished their sovereignty.

Events of the 1800s included:

  • In 1803 the New England States threatened secession; the Louisiana Purchase was seen as a dilution of their power. Massachusetts Senator Thomas Pickering stated: “I rather anticipate a new Confederacy exempt from the corrupt influence of the aristocratic Democrats of the South…There will be a separation…”4
  • Largely due to dissatisfaction with the War of 1812, the New England States considered secession in 1814 during the Hartford Convention. Secession sentiments ebbed after American victory was assured.
  • The New England States mulled secession in 1845. “John Quincy Adams and fellow New Englanders so opposed the admission of Texas that they openly urged the withdrawal from the Union.”5 Again, they saw it as a dilution of power.
  • Seven Southern States seceded in 1860-1861. (The remainder seceded after Lincoln’s call for 75,000 troops to invade sovereign States.) They protested the North’s perversion of the U.S. Constitution, e.g., usurpation of Southern rights, slavery disagreements, and the punitive protectionist tariffs that supported Northern industry. The late Charles Adams explained: “When Southerners realized what they were up against with respect to a high tariff and a new Congress and Republican administration, only two courses of action seemed open to them–secession from the Union and a low tariff for the Confederate states.”6

The American Colonies and Southern States both had valid reasons to secede. As members of a voluntary compact, the Southern States had the best case; whereas, the American Colonies were one part of a vast Empire. Virginia, New York, and Rhode Island entered the Union under the proviso they could withdraw if it was in their best interests. From the 1788 Virginia Convention, we have the following: “We the delegates of the people of Virginia, duly elected in pursuance of a recommendation of the General Assembly and now met in Convention, having fully and freely investigated and discussed the proceedings of the Federal convention and being prepared as well as the most mature deliberation hath enabled us to decide thereon, do in the name and in behalf of the People of Virginia declare and make known that the powers granted under the Constitution, being derived from the People of the United States, may be resumed by them whensoever the same shall be perverted to their injury and oppression, and that every power not granted thereby remains with them and at their will.”7 New York and Rhode Island mirrored Virginia’s language: ”their conventions ordained the root principles on which the right was founded: ‘That all power is naturally vested in, and consequently derived from the people’: and ‘That the powers of government may be reassumed by the people whensoever it shall become necessary to their happiness.’”8

Even Lincoln, the extreme nationalist, commented on January 12, 1848: “Any people, anywhere, being inclined and having the power, have the right to rise up and shake off the existing government, and form a new one that suits them better. This is a most valuable, a most sacred right, a right which we hope and believe is to liberate the world.”9

If Panarin’s predictions eventually come to fruition, we must all hope that it is accomplished peacefully. After all, there is nothing more American than secession. 

  • 1. Earl Starbuck, “Was Secession Treason?” [Quoted from an 1816 letter to William H. Crawford], Abbeville Institute Blog, September 18, 2020, at: https://www.abbevilleinstitute.org/was-secession-treason/.
  • 2. John S. Tilley, Facts the Historians Leave Out, Twenty-Second Printing (Nashville, Tennessee: Bill Coats, Ltd., 1991), 25-26.
  • 3. Ibid., 25.
  • 4. Ibid., 34.
  • 5. Ibid.
  • 6. Charles Adams, When in the Course of Human Events--Arguing the Case for Southern Secession, (Lanham, Maryland: Rowman & Littlefield Publishers, Inc., 2000), 81.
    [1] John Remington Graham, A Constitutional History of Secession, (Gretna, Louisiana: Pelican Publishing Company, 2002), 106.
  • 7. John Remington Graham, A Constitutional History of Secession, (Gretna, Louisiana: Pelican Publishing Company, 2002), 106.
  • 8. Ibid.
  • 9. Tilley, 32.
     
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Turkey’s Central Bank $10 Billion Accounting Trick

01/10/2022Robert Aro

Seems strange that as of December 30, 2021, Turkey’s central bank was carrying a loss of $5.2 billion USD; then on the last day of the year it miraculously made $10 billion, closing the year with a gain of $4.4 billion USD. Was it a lucky break or just an accounting trick?

As reported by AlJazeera:

The central bank declined to comment on the dramatic move on its balance sheet…

It’s unclear why they have yet to disclose the secret of their money-making strategy.

But if it’s any consolation:

Two officials familiar with the matter said it was in line with independent auditors’ accounting advice, but asked not to be identified because of the sensitivity of the matter.

It’s also unclear which accounting firm gave the advice. However, in 2020 a member firm of Ernst and Young signed off on the audited financial statements.

Nonetheless, the billion-dollar windfall could mean a lot for the Turkish treasury. According to the article:

In February, the Ministry of Treasury and Finance – as the central bank’s biggest stakeholder – will begin collecting much of that sum as dividends.

Unfortunately, all that glitters may not be gold, as the former deputy governor of the bank says:

...a possible explanation for the sizable overnight profit boost could lie in the sale of foreign-exchange reserves to the Treasury.

Which is strange because, if so:

The same amount of dollars would then have to be bought back to maintain the reserves level.

If the central bank made its profit from a sale to the treasury, but must buy back from the treasury, and even remit a dividend to the treasury, the economic benefits of the $10 billion become scarcely understood. Even worse, the central bank would have to acquire money from somewhere.

But what does it matter? It’s 2022. This may go down in history as the lost decade under lockdown where governments and their central banks did practically anything they wanted… No matter how blatant the lie, egregious the claim, or how much an economic policy goes against public interest, they face little to no consequences sans perhaps a little backlash on social media.

It’s important to look at other nations, such as Turkey, to see the effects of inflationism as a monetary policy, realizing how all sorts of economic schemes are nothing more than just that: schemes. The major component of these schemes requires increasing the amount of money and credit in circulation with the hope of leading to wealth creation.

Back at home, we too can blame the powers that be for spreading faulty economic ideas. But it’s not just coming from those at the top. CNBC reported a story where a restaurant owner from Denver started an online petition:

…calling for $2,000 per month in aid to every American during the pandemic.

As of today, over 3,000,000 Americans signed the petition. Feel free to join the cause here if you are so inclined.

Just remember, you can’t turn stones into bread. The road to prosperity is not created through accounting gimmicks, money creation schemes, stimulus checks, fluctuations in interest rates, changes to the money supply, nor any other monetary scheme. Whether policy decisions from the Turkish central bank, the Federal Reserve, Congress, or millions of Americans asking for government aid, these schemes ultimately fail. It seems like a lost art, but using labor to produce goods and services, or utilizing savings for capital investment remains the best ways in which wealth creation occurs.

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