Power & Market
We received a new donation from Mr. Carl Watner entitled The Voluntaryist Collection. The highlight of the donation includes the six-volume set: The Collected Works of Lysander Spooner. Within the collection is a series of personal inscriptions that Mr. Watner collected at libertarian conferences over the years, including by Murray Rothbard, George Smith, Leonard Liggio, Joe Peden, Mike Coughlin, Charles Shively (editor of the six volumes), Daniel Siegel (publisher), Wendy McElroy, Chuck Hamilton, John Mueller (cofounder of Laissez Faire Books), and Robert LeFevre.
Mr. Watner's generous gift will be included in the Mises Institute archives, alongside the donations of great libertarian thinkers such as Rothbard, Dr. Robert Higgs, Dr. Ralph Raico, Mr. LeFevre and the Freedom School, and more.
The Mises Institute archives remain one of the world's leading research centers for Austrian economics and libertarian thought, providing a unique resource for research fellows who continue to make their own contributions to the ideas of liberty.
Oliver E. Williamson, 2009 Nobel laureate and founder of "transaction cost economics," has died at age 87.
As I wrote in 2009,
Oliver Williamson's Nobel Prize, shared with Elinor Ostrom, is great news for Austrians. Williamson's pathbreaking analysis of how alternative organizational forms — markets, hierarchies, and hybrids, as he calls them — emerge, perform, and adapt has defined the modern field of organizational economics.
Williamson is no Austrian, but he is sympathetic to Austrian themes (particularly the Hayekian understanding of tacit knowledge and market competition). His concept of asset specificity enhances and extends the Austrian theory of capital and his theory of firm boundaries has almost single-handedly displaced the benchmark model of perfect competition from important parts of industrial organization and antitrust economics.
He is also a pragmatic, careful, and practical economist who is concerned, first and foremost, with real-world economic phenomena, choosing clarity and relevance over formal mathematical elegance. For these and many other reasons, his work deserves careful study by Austrians.
The present COVID-19 pandemic has left public schools scrambling to find ways to dampen the impact on students. Some public schools have switched to virtual instruction, while others have simply sent students home with passing grades.
For many public schools, the transition to virtual instruction – if ever initiated – took weeks . Others have been lukewarm in their implementation of virtual instruction. In April, the New York City Department of Education made a sudden default on its initiative to have instructors use Zoom remotely, leaving many teachers with no efficient alternative.
Fairfax County public schools continuously failed at delivering stable virtual instruction. The list could go on and on. What do all these cases have in common?
They demonstrate a lack of accountability from public school policymakers – both county and state superintendents, and city and state level executives.
Compare the previous examples to how charter and private schools, such as Thales Academy, are handling the transition. Thales’s campus in Franklin, Tennessee is offering free virtual instruction for local K-5 students. No prior or future commitments are required for families to receive remote instruction. According to Thales administrator Rachael Bradley, all other Thales campuses transitioned such that “students did not miss a day of learning.” Additionally, Bradley notes that students and teachers were already used to the technology used in virtual instruction.
Thales is not the only example of school choice and private sector solutions remedying public school policy failures. In San Diego County, charter schools, equipped with virtual instruction far in advance, transitioned to virtual learning in days, as opposed to weeks. In Tallahassee, Florida, one private school started virtual instruction right at the end of spring break.
There is a sharp contrast between how private and charter schools have handled the pandemic compared to public schools. Overall, the former has been far more effective. The burden put on parents by schools simply handing out worksheet packets is great, as parents must take time out of their work schedules to play the role of teachers. Insufficient instruction is particularly detrimental to primary students, who are in the foundational stage of their academic careers.
The crisis underscores lack of accountability from policymakers in non-pandemic times as well. Why would it be unreasonable to foresee the prospect of needing to switch to virtual learning for other reasons, e.g., natural disasters?
With a similar degree of unaccountability, public schools have gotten so used to churning out graduates, regardless of merit, that the decision to “pass” everyone, as aforementioned, becomes easy.
Imagine if private or charter schools waited for weeks to transition to virtual instruction. Imagine if they sent students off with “passing” grades. They would be severely reprimanded by parents. Why are we not holding public schools to this same standard?
Policymakers can exempt themselves from responsibility with hubris like, “What we do is not easy,” or “We’re under a lot of pressure.” But this certainly wouldn’t fly for private school administrators. If crises are the ultimate test of effective leadership, then this pandemic has much to tell us.
Even more telling is how policymakers respond to parents’ search for alternatives. In Kentucky, for example, the GOP-dominated general assembly blocked the possibility of tax-credit scholarships for low income families. Why are parents looking for alternatives greeted with such hostility from public servants?
Truthfully, teachers and students like engagement. They don’t like being given vague promises like “online instruction will be available in the coming days ” Public schools have become so factory-esque, that they lack the capacity to come up with creative solutions in times like these. But the root of this goes back far before the pandemic.
Public schools have made the metric, i.e., graduation rates, the target. It is a classic case of Goodhart’s Law. Hence the reason it is easier to “pass” students than to implement real learning. The time to rethink the place of the colorless public school is imminent.
Donald Trump today announced that "we are not closing our country" if a second wave of COVID-19 hits the country later this year.
Given that Trump is not the one who decides whether or not state governments attempt to impose forced social-distancing measures, we can nonetheless interpret his statement as an announcement that he plans to use his position to oppose efforts to impose lockdowns in the in the future.
But this raises a larger question: how tolerant will the public be toward additional lockdowns in the future as the economy sinks and the effects of unemployment and economic deprivations sink in?
In some places, the answer might be "very tolerant." But in many states and areas, politicians may find that the answer is "no way in hell."
The First Lockdown Was a Sucker Punch
It's understandable why so many Americans were tolerant of the first wave of shutdowns. Fed a steady diet of panicky declarations of an impending viral apocalypse through social media and mainstream media, a majority of Americans—possibly a lopsided majority—became frightened. It is likely that even those who are disinclined to believe lurid media stories of death and destruction took a "wait and see" attitude. People simply didn't know what was going to happen.
Technocrats and politicians were quick to take advantage of this temporary paralysis. Lifelong power-obsessed government bureaucrats like Anthony Fauci and his state-level counterparts demanded that the government suspend the rule of law and impose emergency measures unparalleled in scope in American history. Businesses were forcibly closed. Governors, mayors, and police threatened arrest, imprisonment, fines, and revocation of business licenses for those who remained "disobedient."
Employment collapsed. Livelihoods were destroyed. Since hospitals and medical facilities were largely closed to all but suspected COVID-19 patients, many went without medical care and diagnoses for deadly conditions.
One might say that the enthusiasm and speed with which the government abolished human rights could be described as a "sucker punch." The voters and taxpayers didn't know what hit them.
And for a period of two to four weeks, there was barely any resistance at all. Many were still unsure if half their neighborhood would die of the new disease. Or maybe there really would be corpses piled up in the streets nationwide, since Americans were told that what had happened in Iran or Wuhan would soon happen in the US.
But then it didn't happen. This isn't to say that there wasn't an increase in total mortality. There was, and much of it—but certainly not all of it—was due to COVID-19.
But it soon became clear that human society was not going to descend into plague-induced wreckage. Outside of a few hard-hit cities, hospitals never got even close to the dystopian people-dying-in-the-halls scenario that people were assured would happen. Now, of course, as some states begin to scale back their lockdowns, there's still no sign of corpses piling up in the streets. Yes, death by disease continues, just as it does every day of every year. And there is more death now than there was last year. This includes the "lockdown" states, after all, since there is no evidence that lockdowns actually work.
But this is what always happens with pandemics. It happened in 1958. It happened in 1969. But back then, Americans didn't destroy wholesale the rule of law and human rights out of fear.
The "New Normal" May Just Be a World with Higher Mortality
But for many that fear may be wearing off. After all, people come to terms with risk fairly quickly. There was once a time, after all, that human beings found the speed of a locomotive or a motorcar terrifying. Yet, within a matter of years, many Americans were happy to ride trains and drive cars. And cars didn't even usually have seat belts until the 1960s!
The "new normal" became a world of widespread auto accidents, and auto deaths per million in the early days of automobiles were double what they are today.
And many Americans may soon decide that the "new normal" is a world with more risk of dying of COVID-19. But for many it's a risk that they have decided must be faced, especially when there are many other risks to balance against. After all, It is now becoming clear that efforts to "fight" COVID-19 through lockdowns will lead to more deaths from cancer, from suicide, and from drug overdoses. Just as many Americans decided to face the risk of a deadly car crash for the sake of avoiding the inconvenience of a horse and buggy, so many Americans will decide to "risk it" in a world with COVID-19.
Moreover, the longer lockdowns remain relaxed, the more routine it will become to have lunch with a friend at a restaurant, go to the dentist, or get a haircut. Once people do it a few times without becoming deathly ill, they'll want to keep doing it.
Certainly, there will be no shortage of lockdown advocates who will demand more government coercion, more shutdowns, and more state violence to enforce them, complete with arrests, fines, and more. Many—including people who have no problem with death in the form of abortion and euthanasia—will wrap themselves in the claim "all life is precious" and attempt to shout down and shame those who advocate for human rights and and end to government by decree.
But will that be enough? In some places it may not be enough to gain obedience to a second lockdown.
So the question comes down to this: will Americans fall for the sucker punch twice? Patrick Buchanan doesn't know, although he asks the question, and suggests:
If there is a sudden resurgence of the coronavirus, a second wave, and the media elite and blue state governors demand a new shutdown, a new closure of beaches, parks, shops, restaurants and churches, will the people of this republic comply with those demands or defy them?
Will the nation answer back to the elites: We did that. We sheltered in place. We wore the masks. We socially distanced. We stayed in our homes. We stayed home from work. We have done all we were told to do to contain the virus. But, now, with the shutdown having put 36 million Americans on unemployment and sunk our GDP to Depression-era levels, we're going back to work.
The political divide has already begun to appear.
Indeed, looking at the issue through "the political divide" may be the most instructive. Americans are choosing sides. And passions run high. Asking your neighbor or colleague about his views on COVID-19 is now about as likely to lead to an argument as asking your neighbor for his views on slavery in 1859.
Attempts at another round of lockdowns will only make things worse.
Paul Cantor, longtime Mises Institute scholar and author of Pop Culture and the Dark Side of the American Dream, recently was featured in an Arizona State University miniroundtable "The Walking Dead, the Post-Zombie Apocalypse, and the American Capacity for Resilience." Cantor discusses how popular culture has partly formed our views of pandemics. Among the evidence is the portrayal of the CDC as an organization that is either evil or incompetent. Or both. The Walking Dead, for example, implies the CDC may have caused the zombie pandemic. Cantor points out some eerie parallels between the world of The Walking Dead and the world of the 2020 pandemic. Here is the video:
Cantor also mentions the bizarre comic book put out several years ago by the CDC called Zombie Pandemic. It can be read here.
One of the most powerful men in the world, Chairman of the Federal Reserve Jerome Powell, appeared on 60 Minutes over the weekend. The interview did not mention Austrian economics, a return to the gold standard, or a new laissez-faire stance by the Fed. But there are some thought-provoking sound bites.
When asked if the Fed had simply flooded the system with money, Powell responded, “Yes. We did.” When asked where the money came from, he replied:
We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury bills or bonds for other government-guaranteed securities. And that actually increases the money supply.
Although true (and completely ludicrous) it’s nothing new, as central bankers seem to have no problem supporting inflationism. However, his follow-up sentence was patently false:
We also print actual currency and we distribute that through the Federal Reserve banks.
It is in fact the US Treasury that prints every Federal Reserve note and gives it to the Fed, which then distributes to banks. Why does the world even need the Federal Reserve? And why doesn’t the US Treasury cut out the middleman and print its own currency? The interview continued with the usual fawning over central bankers. Scott Pelley couldn’t help mention how:
Some of the best economic analysts in the world report to you.
One can only wonder how many Austrian economists work at the Fed and what types of analysis could be provided when analyzing trillions of dollars of “stimulus” required to fight a “liquidity crisis.”
Assurances to the market and hopes for future debtors to the Fed were also included:
I will say that we're not out of ammunition by a long shot. No, there's really no limit to what we can do with these lending programs.
Is this not the most alluring trait of money created out of thin air and backed by nothing? Having no limit on the amount which can be generated? Most of the Fed facilities haven’t even opened up yet, and Congress is already cooking up another trillion-dollar spending bill. We can only guess how much money will be “printed” by the time the crisis is over. If the Fed’s balance sheet doubled by this time next year, would anyone really be surprised?
Oddly enough, the chairman mentioned something that was entirely honest:
We don't have oversight over Congress. Quite the reverse, actually. We're a creature of Congress. And they have oversight over us.
Congress created the Fed. Contrary to what we’ve been told, the it cannot save the world by creating more money. It hasn’t worked before, and it won’t work now. In terms of oversight, if Congress wants more transparency, it can simply demand it, repealing any privacy that the Fed has. America survives not because of the Fed, but despite it. Just as an act of Congress created it, an act of Congress can end the Fed.
In recent weeks, we've been keeping an eye on weekly total deaths as they are reported by the Centers for Disease Control and Prevention (CDC). Weekly deaths—as opposed to COVID-19 death totals—provide some needed context. This is important, since we now know that doctors and health administrators are encouraged to be—in the words of Deborah Birx—"liberal" with counting COVID-19 deaths.
This week I'm looking at week 16 (the week ending April 18). The CDC says that week 17 data is "100% complete" but experience suggests that it will still be a week or two before we have 90 percent or so of the total.
Even week 16 will continue to adjust upward, but further large adjustments are unlikely at this point. These numbers are CDC estimates.
Looking at the data we do have, there were 67,059 total deaths in the US during the week ending April 18 (week 16). That's up 24 percent (or 13,206 deaths) over the week 16 average (53,852) for 2017–19. Using the average for 2017–19 as the baseline, "excess deaths" number about 13,000 or 0.004 percent of the US population. Interestingly, so far this year, only week 15 (the week ending April 11) has exceeded the total mortality for week 2 of 2018, which was 67,295. The 2017–18 season was a very bad flu year according to the CDC (week 1 is on the left in blue and week 16 is on the right in yellow for each year):
A large portion of this continues to come from New York State. In New York, the week 16 total was 4,056 deaths, which was 2,083 above the 2017–19 average of 1,972. So, about one-sixth of all excess death in week 16 came from New York. Deaths were up 105 percent over the average for week 16, with excess deaths at more than 2,000 for week 16:
Week 15 (the week ending April 11) may have been the peak week, if we assume COVID-19 was the driving factor in total deaths that week. Worldometer data suggests that COVID-19 deaths peaked the week ending April 11 and have fallen since then.
To offer an example of another large state, we can also look at Florida. Florida has not seen nearly the surge in total deaths that we've seen in New York or nationwide.
For week 16, total deaths in Florida were only up 8.4 percent (or 331 deaths) over the 2017–19 average for the week.
Murray Rothbard once stunned me by saying that he thought the greatest economist in history was Eugen von Böhm-Bawerk. The reason he gave, to the best of my recollection, was: “Böhm-Bawerk created a mighty system of economic theory and then successfully defended it against all comers.” Noticing that I was startled, he asked who I thought was the greatest economist. I replied, “Ludwig von Mises,” Rothbard’s revered mentor, whom I thought would have been his choice. Rothbard acknowledged that an excellent case could also be made for Mises.
It was only many years later that I came to understand why Rothbard gave Böhm-Bawerk an edge over Mises. Böhm-Bawerk’s magnum opus, The Positive Theory of Capital, published in 1889, almost immediately began to elicit comments and critiques from the greatest economists of his age throughout Europe and the United States. The stream of commentary on his work continued unabated for twenty-five years until his death in 1914. During this controversy, Böhm-Bawerk defended and further developed his theoretical system with acute insight and superb dialectical and expositional skills that far outclassed those of all but a few of his critics. In contrast, Mises was never able to engage the greatest economic minds of his age. His brilliant magnum opus, Human Action, published in 1949, barely caused a ripple of acknowledgement in the increasingly positivistic postwar economics profession, which was rushing headlong into macroeconomics, econometrics, and mathematical economics.
Whether or not one agrees with Rothbard about the ranking of Mises and his mentor, Böhm-Bawerk certainly merits a place in the pantheon of the greatest economic theorists.
The Österreichische Mediathek, an Austrian archive for sound recordings and videos on cultural and contemporary history, has published a very short clip titled "Vienna Economics" featuring the voice of Eugen von Böhm-Bawerk. The 26-second clip, dated 1905, is in German, but it allows listeners the rare treat of listening to one of the greatest economists of the twentieth century.
A translation of the page offers this description of the clip:
Unfortunately, the great economist, Professor Eugen von Böhm-Bawerk (1851 to 1914), does not speak about his subject in this sound recording, which was recorded in the Vienna Phonogram Archive on December 20, 1905, but rather mentally talks about the then quite new recording machine, the phonograph. - Böhm-Bawerk, who was also twice Minister of Finance (in the Gautsch and Koerber cabinets), along with Carl Menger, Eugen von Philippovich and Friedrich von Wieser, is one of the main representatives of the Viennese School of Economics, which extends well beyond Austria and beyond.
Transcript: I don't know what future ages would like to learn from us. I would know what I would like to learn from future ages. Unfortunately, the phonogram post, to which I could entrust my curious questions, does not provide a response.
As Guido Hülsmann notes in the magnificent Mises: The Last Knight of Liberalism, 1905 was the year Böhm-Bawerk was the year he obtained a full chair as a professor at the University of Vienna, a victory of profound importance for the history of the Austrian school.
[Carl] Menger was successful not only in developing the continental tradition of economic science, but also in establishing a network of like-minded young thinkers within the confines of Austria-Hungary. He only failed to get Böhm-Bawerk a chair at the University of Vienna. His favorite disciple applied twice,in 1887 and 1889, but each time the Ministry of Education chose a different candidate. They argued that Böhm-Bawerk represented the same abstract and purely theoretical school as the other chairholder (Menger) and that it was necessary to also have a representative of the new historical school fromGermany. Even this did not prove to be a decisive obstacle. In the fall of 1889, Böhm-Bawerk went to Vienna to join the Ministry of Finance and became an adjunct professor at the University of Vienna; in 1905 he obtained a full chair. Hence, in distinct contrast to all other modern (marginalist) schools of economic thought, the Austrian School quickly reached a position of power, protected by intellectual tradition and political patronage. Under the leadership of the next generation, it would obtain a position of unparalleled influence.
Böhm-Bawerk would end up being publishing important works advancing the Austrian theory of capital and interest, as well one of the most potent takedowns of Karl Marx ever written. His students at the University of Vienna included Ludwig von Mises and Joseph Schumpeter.
In a 2002 Quarterly Journal of Austrian Economics article, George Reisman, a student of Mises himself, noted that it's "entirely conceivable to me that Mises might have described Böhm Bawerk as the most important Austrian economist."
For readers who are excited to find this neat historical gem, consider checking out the Ludwig von Mises (Audio) Archives available here on the site.
Does anyone remember, during the last financial crisis, the “evil bankers” who almost collapsed the entire financial system? Then, in order to save the world, the Fed provided loans and bailouts to those same bankers?
Considering the relatively “small size” of the TALF (Term Asset-Backed Securities Loan Facility) and how most living on main street are not in the business of granting loans, it didn’t garner much attention when the updated TALF term sheet was announced this week. Still, after looking further into the program some may discover, or remember, TALF is not new. It was implemented during the Great Recession over a decade ago. During that time, Matt Taibbi wrote an article in Rolling Stone called The Real Housewives of Wall Street which discussed the original TALF program. Per the article, the wife of then Chairman of Morgan Stanley and the widow of another high-ranking Morgan Stanley employee started a company with close to $15 million, borrowing nine loans for $220 million under the TALF. With these low-interest loans they bought student loans and commercial mortgages. At the time of writing, he noted roughly $150 million had yet to be paid back to the Fed. The public didn’t know how much money the borrowers earned from their dealings, as there was no accountability. But the loans were structured such that 100% of the gains would go to the recipients while 90% of the losses would go to the treasury. Understanding the article was written in an entertainment magazine, and not with Austrian economics in mind, he did capture a very important detail:
Given out as part of a bailout program ostensibly designed to help ordinary people by kick-starting consumer lending, the deals were a classic heads-I-win, tails-you-lose investment.
Without comparing the previous TALF to the current, and assuming control issues have been ameliorated by the Fed, the underlying problem with these programs remains the same. They all require money be created then lent to certain members of society for the supposed purpose of saving society in time of need. If the loans are successful, the gains go to the borrower. When the loans are not repaid or forgiven, the newly created money and its accompanying debt will exist as a cost to be paid by future generations. To the masses, these loans seem palpable when the borrower is not considered “rich.” However, the problem persists regardless of the borrower’s income bracket.
The new TALF follows the same Special Purpose Vehicle (SPV) and US Government equity stake to which we’ve now become accustomed. Under the program, the treasury is only making an initial $10 billion equity investment with a maximum lending limit, thus far of only $100 billion. Eligible borrowers can make loans to the public, then use those loans as collateral to borrow from the SPV. In this program, eligible loans include: auto and student loans, credit card receivables, equipment and floorplan loans, leveraged loans, and commercial mortgages to name a few. Even though the TALF may be smaller than the other Fed programs, the anti-capitalist nature and prior history warrants attention.
The day after the updated term sheet was announced, Chairman Powell gave a speech where he stated:
At the Fed, we will continue to use our tools to their fullest until the crisis has passed and the economic recovery is well under way.
At the week’s end, the Fed’s balance sheet hit a record $6.9 Trillion. With many programs still yet to open, central bankers remain convinced their inflationary tools and ability to judge who needs money most far outweighs the life, liberty and happiness of the many. The programs may be larger, but the narrative and risk to the public remains the same.