Power & Market
Words are funny. Strung together, they can have multiple meanings depending on the perceived context and reader’s viewpoint. I can make a statement with the intent to convey argument A, but the reader interprets my statement as not-A.
An example: Trotsky, in “What Next? Vital Question for the German Proletariat” (published as “How Mussolini Triumphed,” in Fascism: What it is and how to fight it, 1944), disparaged the Italian socialist, Turati, for saying, regarding the political battle with Mussolini’s fascist movement, “One must have manhood to be a coward.”
Given the context, it appears Turati spoke with a sense of irony, defending his political strategy. Trotsky subjected those same words to close reading in order to bolster his argument that the Italian socialist was retreating before the fascists. Turati claimed he had manhood, while Trotsky insinuated Turati was a coward.
During my high school years , “Jimmy Carter signed Proclamation (Registration Under the Military Selective Service Act) in response to the Soviet invasion of Afghanistan in the previous year of 1979, retroactively re-establishing the Selective Service registration requirement for all 18- to 26-year-old male citizens born on or after January t, 1960.” This made me eligible for the draft upon turning 18.
But who was I going to fight – who was I supposed to slaughter, burn, maim, etc.? In 1981, as my eighteenth birthday approached, it looked like a hot war in Nicaragua or elsewhere was possible – actually, likely. That meant I could have ended up in uniform shooting peasant farmers whose political worldview disagreed with the then-current policies of the US government – policies that changed with elections. Today’s enemy could be tomorrow’s ally.
Regardless of the side, I could have been required to do the bidding of those in power, to bloody my hands and taint my soul. As a quasi-radical, or what went for a quasi-radical in middle class, suburban Pittsburgh in the early 1980’s, I would have none of it.
In those days, I was a Deadhead – a fan of the rock group, the Grateful Dead. Each Sunday evening, a true public radio station (i.e. non-government funded) had a show that replayed recordings of the band’s concerts. Either before that show or after it (l no longer remember) was another show where antiwar activists discussed the evils of US interventions overseas – this is back when there was a strong antiwar left. That program greatly influenced me. And when there was talk about conscientious objection to war, I listened.
Initially, upon turning 18, I refused to register. However, based on information from the radio show, as well as consultations with my church minister and the antiwar mother of a friend, I learned my best chance to not being forced to point a gun – ironically, at the point of a government bayonet – was to register, but register as a conscientious objector.
However, I did not write this article as a guide to registering as a conscientious objector today – there are many resources on the internet. Instead, I wrote it to discuss the Turati-Trotsky rhetorical divide and answer the question of whether it takes manhood to be a coward. My article is also meant to encourage today’s youth to stand for peace and not war.
To answer the coward question in the context of this article, I revised Turati’s statement to read, “One must have manhood to object to war.” Sadly, that is a true statement, with an unwillingness to fight perceived by many as a sign of cowardice. This is especially so given the lack of any antiwar movement outside of libertarianism.
If the government institutes the draft and your number comes up, are you prepared? If you believe war is wrong, you need to begin documenting those beliefs well in advance of a draft. That documentation will be the primary evidence on your side as you stand before the draft board.
Nevertheless, if your number comes up, you will be called to “serve.” And you may not get that deferral. You may end up being forced to fight. lf you choose not to, you will likely end up in prison, which is not a coward’s path. Additionally, where you would have probably been placed in a non-frontline position (most soldiers are not even near the frontlines, never coming face to face with a person in a different uniform), your objection may put you on the line as an unarmed medic. Again, not a coward’s path.
Nevertheless, folks will call you a coward. But it also takes manhood to hold your ground in face of social pressure.
Luckily, there was no draft in the 1980’s and I never had to find out whether I would have held true to my ideals – whether I truly had manhood. But you, youth of today, may not be so lucky. Plan ahead. Political positions change. War may be nearer than thought. These words, spoken by former Prime Minister Henry Palmerstone in the British Parliament in 1848, are as true in the US today, “We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.”
And those interests may indeed lead to war.
Ask yourself whether you are willing to kill in an unjust war, whether decrees from the US government can provide sufficient moral justification for you to slaughter folks in Afghanistan or Nicaragua (in my day), or anywhere, and whether being called a coward is more frightening than selling your soul, so to speak.
For me the answer is no, but I am long past the draft age. What is your answer?
Think, consider, and act today!
Las Vegas survives on visitors and immigrants. The housing market depends upon those escaping California taxes and regulation with thousands in home equity to bid up home prices in Nevada, in general, and Las Vegas, specifically.
The actual numbers, provided by WolfeStreet.com, are; 47,500 Californians moved to Nevada in 2017, while 23,800 Nevadans moved to the golden state. That’s a net 23,700 inflow from California or roughly 2,000 per month last year.
Why this matters is, as builder Toll Brothers indicated in a recent earnings call,
“California has seen the biggest decline. Significant price appreciation over the past few years, fewer foreign buyers in certain communities, and the impact of rising interest rates all contributed to this slowdown.”
In California’s case, foreign migration is largely from Asia. These people come for jobs, particularly tech jobs, education, and opportunity, or to get themselves and some of their assets away from the long arm of their government.
And now the greatest fear of the housing industry in California is that this inflow from Asia is going to slow down. Even a small slowdown, with domestic out-migration as large as it is, could create massive demand problems for the housing market.
With California being Nevada’s primary feeder market, what happens in California won't stay there, but migrate to Nevada.
In fact, it already has. Eli Segall writes in the LVRJ ,
A total of 7,003 single-family houses were listed without offers at the end of November, up 1.2 percent from October and 54.3 percent from November 2017, according to a new report from the Greater Las Vegas Association of Realtors (emphasis added)
Andrew and Dennis Smith write in their latest Homebuilder’s Research Market Letter,
Resale listing inventory has sharply increased since August of this year. After sitting under two months worth of listings for roughly 17 straight months, our friends at Residential Resources are currently reporting 3.0 months worth of supply in the resale market. While historically a figure of six months has always been considered “normal,” some analysts now say we might need to put that number closer to four months with the efficiencies technology has injected into the home buying process. So, perhaps some might say that Southern Nevada is closer to a “normal” market than previously thought, at least in terms of supply.
Smith and Son also address the topic of builder cancellations,
This topic came back to mind a few weeks ago when we reported a cancellation rate of 29.5 percent across a sampling of 235 active new home communities. This was the highest weekly figure going back to at least 2015. A few days later a large scale builder told us they had their worst month for cancellations in memory, prompting a call from their corporate office.
Nevada went California blue in last month’s election. The Silver state has adopted the Golden state’s housing blues as well.
Jeff Deist recently published an editorial in the Washington Times challenging various proposals—popular among DC think tanks—to create monetary policy "rules" or targets based on statistical data related to inflation or GDP.
One hopes Mr. Powell sticks to his guns and his earlier commitment to tightening in the face of bad economic news. He certainly will face pressure, and not only from President Trump and Congress. Nearly the entire think-tank chorus sounds alike when it comes to monetary policy: The Brookings Institution, the American Enterprise Institute, the Heritage Foundation, the Mercatus Center, and the Cato Institute all offer up some version of rules-based policy.
Rules are meant to be broken. Rules-based proposals are relatively complex and not particularly suited to winning over Congress. It’s one thing to legislate a broad dual mandate for the Fed and hope for the best. It’s another to reach bipartisan agreement on the Taylor Rule and mandate its execution by law. Rules-based proposals are likely to become internalized Fed policies at most, not laws.
But as we’ve seen, policy rules tend to go out the window in times of economic crisis. Fed chairs do not serve in a vacuum; politics and current events often lay waste to the Fed’s vaunted independence. Only Paul Volcker and William McChesney Martin seemed to have resisted the bidding of unhappy presidents.
Monetary rules don’t truly get at the heart of things. Technical analysis and mathematical formulas only obscure the complexity and human fallibility of the real world. Mr. Powell and company are tasked with determining the “best” monetary policy for 320 million Americans with widely diverse interests.
The answer to our coming economic woes lies in recognizing that no monetary policy tinkering can replace the fundamental corrections that must take place: bankruptcy, liquidation and restructuring of firms to clear out bad debt; higher interest rates to encourage capital formation and discourage more malinvestment; an end to direct bailouts by Congress and roundabout bailouts by the Fed; and a serious program of spending and debt reduction in Washington that spares neither entitlements nor defense.
As the article makes clear, statistical or mathematical analysis of economic data cannot save Fed officials from their insurmountable task: determining the supply and price of money in a vast economy. As Ludwig von Mises explained more than a century ago in The Theory of Money and Credit, money is a marketplace phenomenon; as such it cannot be engineered through any amount of technical monetary or fiscal policies:
All proposals that aim to do away with the consequences of perverse economic and financial policy, merely by reforming the monetary and banking system, are fundamentally misconceived. Money is nothing but a medium of exchange and it completely fulfills its function when the exchange of goods and services is carried on more easily with its help than would be possible by means of barter. Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit.
We can't "reform" the Federal Reserve Bank any more than we can reform the FDA or IRS or TSA. Politics and the economic calculation problem cannot be overcome by tinkering.
When crafting Obamacare, the top priority for policy writers was not identifying the best ways for patients to receive the medical care they needed, but instead to identify ways to reduce the costs of care. Rather than working to undo the labyrinth of regulation and government programs that directly contribute to the high costs of American healthcare, the policy wonks within the Obama Administration worked to identify ways government could save money by reforming existing programs and changing the operations of hospitals.
One such initiative was the Hospital Readmissions Reduction Program, designed by the government agency in charge of Medicare and Medicaid. The purpose of the plan was simple, studies showed that 20% of Medicare patients discharged from hospitals ended up returning within 30 days – often for preventable causes. The aim of this new program was to incentivize hospitals to take proactive measures to treat such patients by penalizing them for high readmission rates.
The program was initially hailed as one of the most successful parts of the Affordable Care Act. Readmission rates went down, resulting in savings for the Medicare program. Some even called for expanding the program.
While the program did manage to save the government money, new studies now show that the savings may have contributed to thousands of preventable deaths.
In their words:
[A] deeper look at the Hospital Readmissions Reduction Program reveals a few troubling trends. First, since the policy has been in place, patients returning to a hospital are more likely to be cared for in emergency rooms and observation units. This has raised concern that some hospitals may be avoiding readmissions, even for patients who would benefit most from inpatient care.
Second, safety-net hospitals with limited resources have been disproportionately penalized by the program because they tend to care for more low-income patients who are at much higher risk of readmission. Financially penalizing these resource-poor hospitals may impede their ability to deliver good care.
Finally, and most concerning, there is growing evidence that while readmission rates are falling, death rates may be rising.... If we assume that the program was directly responsible for these increases in mortality and that prior trends would have continued unabated, the program may have resulted in 10,000 more deaths among patients with heart failure and pneumonia.
The authors of the article conclude by asking the question “Why are policies that profoundly influence patient care not rigorously studied before widespread rollout?”
The better one is, “why should government policy makers be influencing the general practices of hospitals in the first place?”
Unfortunately this is simply the latest example of the dangers of government managed healthcare in America. From government insurance plans with payment schedules, to medical coding, to top-down government programs waged in the name of “costs control,” Washington politicians have continued to place government bureaucrats and insurance companies between a patient and their medical professional.
In the words of Dr. Michel Accad:
Of all economic sectors, health care should clearly rank among those most dependent on local knowledge. After all, how to best treat a patient is decidedly circumscribed in the here and now. Yet, lured by the idea that medicine is a scientific enterprise, we persevere in our attempt to manage health care with the same methods that would fail to optimize the construction and distribution of even a simple pencil.
While this new study should give pause to all federal policymakers striving for even greater government control over healthcare, we know that it won’t. Already the drumbeats are growing for the Democratic-controlled House to force a vote on the misnamed Medicare for All bill championed by Bernie Sanders and his fellow democratic socialists.
They will continue to say their program will “save money.” Those familiar with history will know it will simply cost lives.
President Donald Trump is pushing for a wall to be built built to prevent immigration through the southern border of the United States. It was a signature issue of his successful campaign to become president and has stated that he is willing to shutdown the federal government in order to get what he wants. Indeed, a large majority of Americans are opposed to paying taxes in order to provide welfare and free education for foreigners, but is a wall the right solution?
As I have already pointed out, much of the desire of central Americans to come to the US is because of our own War on Drugs. That policy increases the price of illicit drugs and encourages the development of drug cartels to safeguard the transport of drugs from the production countries such as Bolivia, Columbia, and Mexico into the United States. Safeguarding the drugs for the drug cartels results in them using extreme bullying and violence on the local populations along the route, including the police and governments. The only way to prevent this asylum-seeking traffic is to end the war on drugs.
Looking beyond the motivation of immigration, let us take a look at walls. Typically, they are a signature piece of civilization. Walls are the key part of “permanent” societies. Archeologists and anthropologists study the remainder of walls in order to interpret what societies were, what they did, how they lived, and what they valued. In the modern context, walls and room size are a measure of our standard of living as bigger rooms and taller walls are a sign of success and improvement whereas sleeping in the rafters in a small cabin on the American plains is a sign of relative impoverishment. Having a big corner office with big windows is a sign of accomplishment, whereas the cubicle and the open office concept is the equivalent of eating your Christmas dinner at the child’s table.
In contrast to these walls, we have historically important governmental walls that archeologists and historians also study and write about. These walls have the exact opposite connotation. They are symbolic of isolation and decline — they are supposedly a last-ditch effort to “save” a civilization from the marauding horde of savage people. In reality they have never worked and only contribute to the decline of various empires because of cost and the resulting isolation. This is the type of wall that President Donald Trump wants to build.
The first historic wall was the Great Wall of China. Spanning more than five thousand miles from east to west in northern China, the Great Wall is one of the most marvelous structures of early human civilization. It is often taught that the wall was built to prevent the invasion of Mongol hordes, but the actual purpose was to prevent immigration and trade and to help consolidate the Chinese Empire. Eventually there were invasions and wars, but they were more about pent up demand for immigration and trade then they were about territorial expansion.
The second historical wall is Hadrian’s Wall. This wall was built across northern England by the late Roman Emperor Hadrian shortly after he came to power in 117 AD. We typically learn that the wall was built by Hadrian to prevent invasion by various barbarous tribes to the north. We do know that Hadrian built the wall because of his policy of defense and consolidation, rather than continual expansion so his wall marks a historical turning point towards the demise of Rome. There were already various rebellions in the Empire, including England and this new policy was designed for dealing with this new reality of decline.
There are various theories why the wall was built, including the prevention of invasion, but some scholars are dubious that preventing invasion was a cost-effective priority. More likely, the reason for the wall was to regulate immigration, to prevent smuggling and cattle theft, and to collect custom fees on trade. Therefore, the wall provided the Roman legion in northern England with something to do and also a means of generating government revenue to feed and fund the troops.
The third historical wall in the Berlin Wall and the Iron Curtain. At the end of World War II Germany and Berlin remained divided into zones of control by the Soviet Union, Briton, France, and the United States. The three allied zones were consolidated into West Germany and West Berlin while the Soviet zones became East Germany and East Berlin. The problem with this arrangement was that while all of Germany was devastated by WWII, West Germany would soon become one of the fastest growing economies of the world, thanks in no small part to the policies of the liberal economist Ludwig Erhard, a friend of Ludwig von Mises. He eliminated price controls, deregulated the economy and enacted effective monetary reform. Meanwhile in East Germany the economies of the Soviet zones quickly fell behind.
As a consequence of the diverging economic performance, Germans from the eastern zones began migrating to the western zone for jobs, opportunity and freedom. This migration was intolerable to the communists as the most visible sign of the failures of socialism and the successes of free market capitalism. In response East Germany began to build the Berlin Wall and the Soviet controlled states began constructing the Iron Curtain to prevent migration of eastern Europeans into western Europe. These barriers were fairly successful in preventing migration and many people were shot and killed trying to escape Communism for life in capitalist Europe. Then in 1989 the German people— East and West —tore down the wall and signaling the failure of communism.
I know that most people do not really care about the practicalities of a wall, some may be wondering why the Congress doesn't just give him the funds and so they can get on with the holidays without all the drama of a government shutdown. The proper view of government walls argues against such apathy and, more importantly it should wake us up to the larger picture that the United States is a modern empire. We need to all think about what can be done to prevent us from making the same mistakes as China, Rome, and the Soviet Union.
Following last February's shooting at Marjory Stoneman Douglas High School in Parkland, Florida, some students claimed local government officials were at fault for failing to provide protection to students. The students filed suit, naming six defendants, including the Broward school district and the Broward Sheriff’s Office , as well as school deputy Scot Peterson and campus monitor Andrew Medina.
On Monday, though, a federal judge ruled that the government agencies " had no constitutional duty to protect students who were not in custody."
This latest decision adds to a growing body of case law establishing that government agencies — including police agencies — have no duty to provide protection to citizens in general:
“Neither the Constitution, nor state law, impose a general duty upon police officers or other governmental officials to protect individual persons from harm — even when they know the harm will occur,” said Darren L. Hutchinson, a professor and associate dean at the University of Florida School of Law. “Police can watch someone attack you, refuse to intervene and not violate the Constitution.”
The Supreme Court has repeatedly held that the government has only a duty to protect persons who are “in custody,” he pointed out.
Moreover, even though the state of Florida has compulsory schooling laws, the students themselves are not "in custody":
“Courts have rejected the argument that students are in custody of school officials while they are on campus,” Mr. Hutchinson said. “Custody is narrowly confined to situations where a person loses his or her freedom to move freely and seek assistance on their own — such as prisons, jails, or mental institutions.”
Hutchinson is right.
The US Supreme Court has made it clear that law enforcement agencies are not required to provide protection to the citizens who are forced to pay the police for their "services."
In the cases DeShaney vs. Winnebago and Town of Castle Rock vs. Gonzales, the supreme court has ruled that police agencies are not obligated to provide protection of citizens. In other words, police are well within their rights to pick and choose when to intervene to protect the lives and property of others — even when a threat is apparent.
In both of these court cases, clear and repeated threats were made against the safety of children — but government agencies chose to take no action.
A consideration of these facts does not necessarily lead us to the conclusion that law enforcement agencies are somehow on the hook for every violent act committed by private citizens.
This reality does belie the often-made claim, however, that police agencies deserve the tax money and obedience of local citizens because the agencies "keep us safe."
Nevertheless, we are told there is an agreement here — a "social contract" — between government agencies and the taxpayers and citizens.
And, by the very nature of being a contract, we are meant to believe this is a two-way street. The taxpayers are required to submit to a government monopoly on force, and to pay these agencies taxes.
In return, these government agents will provide services. In the case of police agencies, these services are summed up by the phrase "to protect and serve" — a motto that has in recent decades been adopted by numerous police agencies.
But what happens when those police agencies don't protect and serve? That is, what happens when one party in this alleged social contract doesn't keep up its end of the bargain.
The answer is: very little.
The taxpayers will still have to pay their taxes and submit to police agencies as lawful authority. If the agencies or individual agents are forced to pay as a result of lawsuits, it's the taxpayers who will pay for that too.
Oh sure, the senior leadership positions may change, but the enormous agency budgets will remain, the government agents themselves will continue to collect generous salaries and pensions, and no government will surrender its monopoly on the use of force.
A growing chorus of alarmist voices decries the rising economic inequality in the Western world and especially in the United States.1 Surprisingly enough, the same mainstream analysts complain about the anemic growth of labor productivity without seeing the correct link between the two.
Data shows a strong correlation between labor productivity and economic inequality (the two charts below). From the end of Second World War until the mid-1970s, labour productivity grew at a robust rate of almost 3% per annum while income inequality declined. Afterwards both trends reversed - labor productivity slowed to below 2% growth p.a. on average and almost stagnated since the Great Recession while both wealth and income inequality expanded steadily.2
What common factor could explain the two divergent trends that the mainstream analysts seem to overlook? In the 1940s Mises3 was impressed by the ”miraculous” rise in the standards of living of American wage earners which had been going on for more than two centuries. For him the answer was straightforward: capital accumulation is the driving force behind both labour productivity and standards of living convergence.
Building on Mises' work, Rothbard4 explained in detail what capital accumulation requires: (i) new capital investment that lengthens the structure of production and (ii) technological progress that overcomes the diminishing returns accompanying the increase in the supply of capital goods. However, Mises also warned that a depletion of the capital stock would hamper capital accumulation and labor productivity.5 Unfortunately, mainstream analysts and the United States seem to have forgotten this valuable lesson.
In terms of technological progress, the U.S. has maintained its world leadership during past decades. It ranks second in the world to Switzerland in terms of both innovation and business sophistication6, spends more for Research &Innovation than the OECD or EU on average relative to GDP7 and makes up for the majority of the top 25 universities in the world.8 Moreover it has issued the same amount of patents over the last three decades compared with the previous 150 years.9
In terms of capital stock, the picture is completely different. According to estimates of the Bureau of Economic Analysis (BEA),10 the stock of private non-residential assets per worker has increased in real terms at about 1% p.a. from 1947 to 2009 and stagnated since the Great Recession (left chart below). However, BEA's alleged sustained pace of capital growth seems hard to reconcile with the falling private investment and savings since the mid-1970s (right chart below).
In addition, the BEA methodology presents some serious shortcomings. Except for cars, BEA uses the “perpetual inventory method” to estimate fixed assets.11 According to it, the value of the capital stock is indirectly estimated as the sum of past investment flows minus the estimated depreciation. It means that all past investments are considered sound by default which is certainly not the case nowadays when recurrent boom and busts cause significant volumes of 12malinvestments. Other question marks relates to the accurate estimation of depreciation rates in the face of rapid technological progress and the use of GDP deflators while their accuracy is unreliable especially as regards real estate investment.
All these considerations have led not only us, but also the Federal Reserve Board (FRB) to suspect that BEA's estimates of the U.S. capital stock are overvalued.13 It is intriguing that the FRB adjusts the BEA estimates downwards, especially as regards real estate assets - "structures" in BEA's jargon, when it uses them as input for the calculation of the capital stock in manufacturing. As a result, there is a substantial difference between BEA and FRB estimates of the evolution of the volume of manufacturing capital stock from 1952 to 2016, in particular for the real estate component (left chart below).14 Therefore, we tried to recalculate the BEA estimate of the total stock of private non-residential capital per employee by extrapolating the difference between the two manufacturing indexes coming from BEA and FRB (right chart below).
The new results suggest that the real stock of capital per worker has grown in a clear and sustained manner only until the end-1970s and fell afterwards until the trough of the Great Recession. The recalculated capital stock is both more consistent with the observed declines in investment and productivity since the mid-1970s and confirms Mises' prediction that wrong policies would lead to capital consumption.
For the United States, the failed economic policy is the exponential growth of government intervention in the economy in the 20th century, which stifled entrepreneurship and capital accumulation. This is obvious in the rise of both government spending that redistributes away economic resources from their originators (left chart below) and the amount of regulatory burden (right chart below). Another key factor taking a toll on capital endowment is inflation, which gained traction since the de-facto abolishment of the gold standard in 1971.
Most importantly, inflationary policies trigger boom-bust cycles via the artificial lowering of interest rates below their free market level. In a recent article on the business cycle,15 Salerno emphasizes that, "overconsumption" and "malinvestment" are the two salient marks of the boom and not "overinvestment" as wrongly understood by some mainstream critics. It is no surprise that the capital stock per worker dropped during the business cycles that occurred regularly since the 1970s and culminated in the Great Recession. The illusion of the boom fuels not only capital consumption but also the polarization of wealth and incomes in the society. The fiduciary credit expansion fuels an increase in asset prices, most commonly on stock exchanges and in real estate (charts below).
Although starting from a limited number of transactions, all owners calculate their net worth with the newly inflated asset prices, boosting the value of household assets in excess of liabilities. As a result, the rich appear to get even richer in an economy on steroids. This explains why both the U.S. national wealth has grown much faster than national income since the end-1970s (left chart below) and the number of wealthy people increased significantly (right chart below).16
The rising inequality since the 1970s has been fueled by both the decline in labor productivity and the monetary expansion inflating asset prices. Both are perverse effects of government interventionist policies, which led to a gradual erosion of the U.S. capital stock per employee. This is the correct linkage between inequality and productivity as explained by Mises and other Austrian School economists.
People have different skills and preferences, so the free market does not lead to a complete equalization of incomes and wealth. Nevertheless, it does ensure the proper allocation of capital to increase labor productivity and satisfy the most urgent needs of consumers. As a result, the gap between the well off and the poor is not only gradually diminishing, but also gets less significant in terms of consumption. Eventually the disadvantage of wealth inequality becomes mostly a psychological one.17 As long as the capitalist consumes only a fraction of his wealth and invests the rest into productive businesses, the real beneficiary of the increase in labor productivity is the poorer part of the society.
- 1. See George Reisman’s devastating critique of Thomas Pikkety's Capital in the Twenty-First Century (2014) at http://georgereismansblog.blogspot.com/2014/07/pikettys-capital-wrong_28.html , or the OECD at http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm .
- 2. In addition to the share of total income and wealth gained by the top 1% rich, the share of both the bottom 50% and especially the middle 40% went down since the 1980s, reflecting the "hollowing-out" of the middle class.
- 3. See Ludwig von Mises, Human Action ( 1998), pp. 611-612.
- 4. See Murray N. Rothbard, Man, Economy, and State with Power and Market, (2009) pp.537-543.
- 5. See Ludwig von Mises, Human Action ( 1998), pp. 844.
- 6. See the Global Competitiveness Index 2017-2018 at https://www.weforum.org/reports/the-global-competitiveness-report-2017-2018 .
- 7. See the OECD data at https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm .
- 8. See rankings at https://www.topuniversities.com/ .
- 9. See data from the US Patent and Trademark Office at https://www.uspto.gov/web/offices/ac/ido/oeip/taf/h_counts.htm .
- 10. The most authoritative U.S statistics of capital stocks are provided by BEA who estimates long term series of the net stocks of fixed assets for the US economy. See BEA data that I used at: https://apps.bea.gov/iTable/iTable.cfm?reqid=10&step=1&isuri=1#reqid=10&step=1&isuri=1 under section 4: Section 4 - Nonresidential Fixed Assets (Table 4.2)
- 11. See the BEA methodology at https://apps.bea.gov/national/pdf/Fixed_Assets_1925_97.pdf at M-6.
- 12. The Austrian Theory of the Business Cycle pioneered by Mises, Hayek and Rothbard explains how malinvestments create significant distortions in the structure of production and reduce directly the capital stock in the economy during the boom.
- 13. See https://www.federalreserve.gov/releases/g17/CapitalStockDocLatest.pdf , pages 5 and 6.
- 14. See BEA data at: https://apps.bea.gov/iTable/iTable.cfm?reqid=10&step=1&isuri=1#reqid=10&step=1&isuri=1 under section 3: Section 3 - Private Fixed Assets by Industry (Tables 3.2ESI, 3.2E and 3.2S ) and FRB estimates at https://www.federalreserve.gov/econresdata/notes/feds-notes/2016/annual-data-on-investment-and-capital-stocks-20160302.html and FRB data in Table G.17 at https://www.federalreserve.gov/releases/g17/download.htm#capstock .
- 15. See Joseph Salerno.2012. "A Reformulation of Business Cycle Theory in Light of the Financial Crisis", Quarterly Journal of Austrian Economics, Vol 15/No1/3-44 at https://mises.org/library/reformulation-austrian-business-cycle-theory-light-financial-crisis-0 .
- 16. Capgemini Financial Services define HNWIs as those who have investable assets of more than USD 1 million, excluding primary residences, collectibles and consumer durables. It estimate that the number and wealth of U.S. HNWIs more than doubled in less than a decade of ultra-low interest rates; see report at https://www.worldwealthreport.com/reports/population .
- 17. George Reisman.2014. "Pikkety's Capital: Wrong Theory/Destructive Program", pp. 25.
Back in 2016, Donald Trump criticized the Federal Reserve for keeping interest rates too low. Trump explained that the Fed's work to keep interest rates artificially low benefits the wealthy at the expense of the poor:
And you know the people who are hurt the most are people that saved all their lives, and thought they were going to live off the interest. Those people are getting absolutely creamed.
As a wealthy investor, though, Trump says he "loves low interest rates."
But those who cut down on debt and save their money are hurt by Fed policies:
The ones who did it right — they saved their money [and] they cut down on their mortgages, ... and now they're practically getting zero interest on the money," Trump said. "Those people have really been -- you could almost say discriminated against.
Trump also accused the Fed of creating a "false economy" that made Obama look good, but was really nothing more than a system propped up by Fed stimulus and quantitative easing.
At the time, many Trump supporters used this apparent awareness about the damage done by Fed policies as an indication that Trump would be hostile toward dovish Fed policies once in office.
This hope, however, has proven to be utterly unfounded. Trump apparently doesn't understand or doesn't believe his earlier (correct) critique of Fed policy.
He's done an about-face and If anything, Trump, now that he's in office, has been relentlessly enthusiastic about continued Fed stimulus.
He has repeatedly criticized the Fed to raising interest rates, saying in November:
So far, I’m not even a little bit happy with my selection of [Fed Chairman] Jay [Powell]. Not even a little bit. And I’m not blaming anybody, but I’m just telling you I think that the Fed is way off-base with what they’re doing.
Trump main beef with Powell and the Fed has been the bank's turn toward (very mild) hawkishness under Powell.
In other words, Powell has been doing what Janet Yellen should have done years ago, but lacked the guts to do.
The rate hikes under Powell are far too small, of course, and the Fed's balance sheet continues to be enormous. Powell knows that dumping the Fed's assets, which would have few buyers in the open market, deflation would likely set in.
(According to the dominant ideology in DC, this would be a terrible thing.)
But at least Powell appears to realize that unless the Fed can get the target rate back up to a level sufficiently above zero to allow for maneuvering in case of recession, the Fed will be boxed in.
Trump, who has never demonstrated any actual grasp of monetary policy — or economics in general — just wants to keep the current boom going. And whether he knows it or not, the "false economy" Trump pointed to under Obama is now Trump's false economy.Trump doesn't want that to go away so he now publicly calls for lower interest rates.
Given this, it's now a pretty safe bet that if recession does come during Trump's presidency, he'll be calling for ever-higher levels of stimulus and QE infinity. If he's pushing so hard now for low rates, just imagine what he'll do when the going gets even tougher.
Momentum in Congress is Building to Decriminalize Marijuana, but Bipartisan Leadership Stands in the Way
Momentum is strongly behind the United States government ending its war on marijuana. From states legalizing medical and recreational marijuana to the increasing majority support among Americans for full marijuana legalization, countrywide legalization is more and more seeming inevitable. Indeed, I would not be surprised to see the US government legalize marijuana within the next four years. But why not this year or even this week? What is delaying congressional action to legalize? A major barrier appears to be resistance by congressional leadership.
Similar to how House leadership last week acted, through the House Rules Committee, to prevent a House floor debate and vote on legislation seeking to end the US military’s involvement in the war on Yemen, the Rules Committee has for years repeatedly blocked any amendments seeking to liberalize US marijuana law from reaching the House floor. And having such a provision included in a bill before the bill reaches the House or Senate floor is just about unheard of, though the passage in both bodies of the farm bill last week containing legalization of farming hemp (cannabis with a very low THC percentage) is a promising sign that Congress may approve more war on marijuana roll backs soon.
Another promising sign could be Democrats taking over the leadership in the House next month. Democratic voters and Democratic House members have overall been more supportive of ending the war on marijuana than their respective Republican counterparts have been. That suggests that roll-back bills and amendments will fare much better under Democratic leadership than they have under Republican leadership. In line with this expectation, incoming House Rules Committee Chairman Jim McGovern (D-MA) has declared that, unlike his Republican predecessor, he will not block marijuana amendments from reaching the House floor for debate and votes. But, a note of caution is in order. Top overall Democratic leaders in the House have been less than enthusiastic about supporting war on marijuana roll back efforts. Also, there can be a failure of the House and Senate to agree on war on marijuana roll-back or elimination legislation if the Democratic-majority House approves only legislation that includes provisions, such as welfare program expansions coupled with race-based preferences, that could prevent the legislation from advancing in the Republican-majority Senate.
Rep. Thomas Massie (R-KY) asserted in an interview this month that legislation leaving marijuana law up to the states would pass in the House if leadership would just allow a House floor vote on it.
Similarly, Sen. Cory Gardner (R-CO) declared in a new Bloomberg interviewthat he believes a majority of Senators would vote in support of the US government deferring to states’ marijuana legalization and war on marijuana roll-back laws. This week, Gardner sought to test this proposition by bypassing the blocking of such marijuana bills from reaching the Senate floor. He offered an amendment on the Senate floor proposing a major roll back of this type in the US government’s war on marijuana, but, that amendment also was blocked.
Why are Senators not being allowed to have Senate floor votes on rolling back or ending the US war on marijuana? As in the House, the reason is leadership.
Hopefully, House and Senate leadership will take a new approach to marijuana in January when both a new year and a new Congress begin. There is no reason to have to wait two to four years, or even longer, for the terminating of the US war on marijuana — along that war’s creation of more bad effects. Senate and House leadership, including Senate Majority Leader Mitch McConnell (R-KY) and expected next House Speaker Nancy Pelosi (D-CA), can help make 2019 the year of ending marijuana prohibition. Accomplishing this goal would likely not require leadership members to do much leading. Instead, it could just require that they get out of the way.