Power & Market
Nicolas Petit's forthcoming book, Big Tech and the Digital Economy (Oxford, 2020) offers an interesting new take on antirust and regulation in the digital economy. Here's one wise reviewer:
Introducing the concept of "moligopoly" Petit shows how firms with big market shares -- even so-called "entrenched monopolists" -- still face vigorous competition in adjacent markets. Weaving together insights from industrial organization economics, strategic management, and theories of dynamic competition and building on thinkers from Joseph Schumpeter to David Teece, Petit provides not only an overview of key issues related to digital markets and technologies but also a provocative and useful guide for making competition policy better.
OK, that's my own dust jacket blurb. The law and economics blog Truth on the Market is running a symposium to celebrate the launch of the book and I contributed a short piece, "It’s Not So Simple Who Owns 'Your' Data," which elaborates on a point I made in my Mises University lecture on data privacy.
On October 5, Ryan McMaken’s article "Police Officers Threaten to Quit If the Public Keeps Demanding Accountability" managed to hit the top spot on Reddit. It was soon removed from the popular social media platform under very suspicious circumstances.
For those not familiar with Reddit, the platform consists of “subreddits” based on a particular topic or theme. The best performing posts within a subreddit are then highlighted on the front page. In this case, the subreddit was one titled "Not the Onion," which features “true stories that are so mind-blowingly ridiculous that you could have sworn they were from The Onion.” The headline to Ryan’s article seemed like a natural fit; users of the subreddit agreed, but the thought police of Reddit disagreed.
Despite Reddit’s actions against the article, the piece managed over a hundred thousand views.
Unfortunately, Reddit hasn’t been the only Big Tech actor seemingly interested in downplaying Mises Institute content. In recent weeks, Google has made changes to its search engine that makes Mises Institute articles harder to find. This seems particularly true for articles on Big Tech and social media. The content itself doesn’t seem to be the issue—links to websites that republished our articles still appear on the front page—but the mises.org link has been buried.
While disappointing, none of this is surprising. The ideas of the Mises Institute are particularly dangerous to would-be central planners of all kinds. While social media and Big Tech have been useful tools in the promotion of our ideas, we have long understood the dangers of relying upon these platforms for distribution.
In the words of our founder, Lew Rockwell, “we don't beg for scraps from the imperial table, and we don't seek a seat at that table. We want to knock the table over.”
To those ends, we have actively worked to improve our internal email lists and search engine. We are lucky that a large portion of our frequent user base visits our site directly, which is the surest way to avoid the censorship of third parties. We also have backups of our online video library on censor-resistant platforms, such as Bitchute.
No matter how the landscape of future politics and power unfolds in America, the ideas of the Mises Institute will not be silenced so long as there are those interested in finding the truth.
If you believe in these ideas, please consider becoming a Mises Institute member for just $5 a month at Mises.org/censor.
Back in August, European politicians were threatening lockdowns and calling for "vigilance." But given the economic devastation wrought by full, nationwide lockdowns, politicians have become fearful of going down that road again. For example, in the Czech Republic, where the seven-day average for reported covid deaths has surged from 7 to 66, the central government has stated it won't make a decision about lockdowns for two more weeks. Meanwhile, Czech citizens are protesting against what restrictions are in place.
But elsewhere in Europe, restrictions are quickly escalating.
Belgium: all bars, cafes, restaurants must close.
Ireland: people are required to limit movement, stay out of each other's homes.
France: new nighttime curfews.
Spain: people can't leave or enter Madrid for nonessential reasons.
Netherlands: a maximum of three people in your home per day.
It should be noted that Spain, Ireland, and Belgium have had some of the strictest lockdowns in Europe. Belgium never really ended strict measures and has always had very draconian measures on gatherings, even during the summer, as other countries were raising restrictions. Belgium now has the worst national covid death rate in Europe.
In Spain, of course, the lockdowns were notoriously strict during spring 2020, with families not even permitted to leave their apartments to gather with family outside.
It was claimed this would all "beat the virus." Of course, lockdowns do no such thing.
As Dr. Gilbert Berdine has noted here at mises.org:
The data suggest that lockdowns have not prevented any deaths from covid-19. At best, lockdowns have deferred death for a short time, but they cannot possibly be continued for the long term. It seems likely that one will not have to even compare economic deprivation with loss of life, as the final death toll following authoritarian lockdowns will most likely exceed the deaths from letting people choose how to manage their own risk.
In Sweden, there is still no sign of any resurgence of covid deaths. There is no lockdown, and no general mask mandate. Death rates in Spain, Belgium, Italy, and eastern Europe continue to get worse while Sweden's rate remains stable.
As we noted back in July, Americans are buying guns in record numbers, with millions of Americans buying guns for the first time in recent months. Now, the New York Post reports that California is very much part of this trend:
About 47,000 Californians bought guns for the first time because of the coronavirus pandemic, according to researchers who also found a staggering amount keep their weapons locked, loaded and readily available.
But the Post article also makes some rather odd assertions, implying people are buying guns because of a "health crisis":
An estimated 110,000 people in the Golden State recently purchased firearms and did so because of the global health crisis, including the 47,000 new owners.
But why would people buy guns because of a public health crisis? It's a safe bet new gun buyers don't think guns will protect them from a disease. If we look a little further, we then see it's the lockdowns that are the problem, not the disease:
The coronavirus pandemic and efforts to lessen its spread have compounded this burden. (emphasis added)
So there it is. By destroying the economy, social services, churches, and commerce, governments have laid the groundwork for more violence. Consequently, many more Americans now feel unsafe:
People who bought guns during the pandemic cited concerns over lawlessness, prisoner releases, the government going too far, government collapses and gun stores closing, the research found.
Not surprisingly, we have seen real-world increases in crime this year over last year. In some cities, the increases in homicide have been substantial, although overall homicide continues to be relatively low in a larger historical context. Moreover, many Americans have figured out that if civil unrest comes to your neighborhood, the police won't be doing much to protect you. The smoking ruins of Minneapolis have made this abundantly clear to many.
So much for that mythical "social contract" the governments keep talking about whenever it demands more power over the people it allegedly "keeps safe."
As is often pointed out by prolockdown publications like the New York Times, Sweden has experienced covid-19 deaths at a rate above that of some of its neighbors that imposed relatively strict lockdowns, such as Denmark.
What is rarely mentioned, however, is that Sweden's deaths per million are also similar to or lower than many countries that did impose harsh lockdowns. For example, as of October 18, the deaths per million in the United Kingdom were 643 in the UK for only 585 in Sweden. Meanwhile, Belgium's death rate was 897 per million, and Italy's rate was 606. Moreover, while cases and deaths are increasing in the UK, Spain, Italy, and Belgium, deaths are apparently flatlining in Sweden. Sweden has reported fewer than ten deaths in the past week.
Clearly, this trend calls into question the official narrative, which is that any country without harsh lockdowns will experience far higher death rates than the countries that lock down.
That narrative having failed in the case of Sweden, prolockdown critics have attempted other explanations. One is that population density is lower in Sweden, so therefore it will have lower deaths per million. This claim leaves much to be desired. New research suggests the data is, at best, inconclusive on that matter. While density is like a factor of some kind, there's no evidence it is a factor to the extent that would be necessary to explain why Sweden has performed better than the UK and Spain, for instance.
Another theory is that the Swedes have voluntarily practiced social distancing so studiously, that this explains away the apparent failure of the "forced lockdown or die" narrative.
As one reporter at Quartz claimed: "Citizens seems to be taking their responsibility seriously. Residents point out that they are practicing social distancing, with the elderly isolated, and families mostly staying home, apart from kids in school."
Or in an article at MedPageToday: "'Swedes in general have changed their behavior to a great extent during the pandemic and the practice of social distancing as well as physical distancing in public places and at work has been widespread,' said Maria Furberg, MD, PhD, an infectious diseases expert at Umea University Hospital in northeastern Sweden."
But, again, the data doesn't show this.
Using the Google Community Mobility Trends data, we find that the Sweden practiced social distancing far less than countries that had strict lockdowns in place.
For example, the amount of time spent at home surged 30 percent in the UK, Spain, and Italy during the harshest lockdown period. Yet during this same period, the Swedes's amount of time spent at home never exceeded 15 percent.
Meanwhile, the decline in workplace visitors has tended to be relatively small compared to countries with stricter lockdowns and with higher death rates.
We find similar trends in recreation and retail:
And in the use of transit:
With all the history, lore and media spotlight the Federal Reserve receives, how many people stopped to ask: What is the Fed’s purpose?
According to their website’s FAQs, the Federal Reserve system exists to:
provide the nation with a safer, more flexible, and more stable monetary and financial system.
It aims to carry this out through free market intervention including:
influencing money and credit conditions in the economy in pursuit of full employment and stable prices.
While the method of operations may leave some questioning the efficacy of its ability to reach its goals, it’s still much different than what San Francisco Fed president Mary Daly told the Wall Street Journal, in a one-on-one interview on Thursday:
If you go back to our forefathers, in 1913 they created the Federal Reserve and created clear roles. The Federal Reserve’s job is to use the short-term interest rate and its asset-buying capabilities to stimulate the economy, accommodate and stimulate the economy, through the interest-rate channel, making it cheaper for households and businesses to buy and sell goods.
The problem with “stimulate the economy” is that it signifies very little, as all platitudes do. How much stimulation does an economy need? And whether they may over- or understimulate can hardly be articulated. Concluding the Fed makes goods cheaper is an untenable position to hold considering they seek to fight deflation. What is possible to explain are interest rates and asset buying. Once understood, the redundancy of the Fed is exposed.
The first tool is interest rates, in which there is either an ideal rate or not. If the position of an “ideal rate” is believed, the question to follow is: How is this calculated? With over a hundred years of experience, we still have yet to find a verifiable method. No one can prove why a 0.25 percent rate is preferred to 0 or 0.50 percent.
If there is no ideal interest rate, we must come to terms with understanding that the Fed has no business in setting benchmark rates for an entire nation, if not the entire world.
The second key tool is the “asset-buying capabilities,” the act of money creation for the purpose of buying real assets. This is an act that, if done by anyone except the Fed, would lead to lengthy prison sentences.
Similar to the notion of an ideal interest rate, there is no such thing as the “optimal money supply.” Like interest rates, if such a number exists, it still has yet to be proven. Money creation comes with side effects such as rising inequality, as those who receive the new money first have an advantage over those who receive it late, while allowing central planners to pick favorites. At $18.7 trillion, the M2 money supply has increased by over $3 trillion since the start of 2020. It appears to be on a path to growing exponentially!
Once understood there exists no ideal interest rate or optimal money supply, the Fed’s value to society gets called into question. Of course, there may be value to some members of society as Vice Chair for Supervision Randal K. Quarles said in a Q&A on Wednesday about the Treasury market:
It could be that “the sheer volume there may have outpaced the ability of the private market infrastructure to support stress of any sort there.”
In other words, the private market for treasuries can no longer function without the help (asset buying) of the Fed. Hardly shocking, considering the mortgage crisis was over a decade ago. Yet the Fed still buys mortgage-backed securities. And, like the Bank of Japan, which cannot exit the stock market, or the European Central Bank, which can never exit the corporate bond market, in 2020 the Fed entered territory it will never be able to leave, while simultaneously advancing in areas it never belonged in in the first place.
I spent a little time at Jekyll Island, Georgia, the weekend before last. I looked hard, but I didn’t find the mythical creature from Jekyll Island. From what I hear, it’s taken up permanent residence in Washington, DC. But I did locate its birthplace.
If you don’t get the reference, I’m referring to the Federal Reserve.
The central bank was conceived during a secret meeting at a private club on Jekyll Island. According to an NPR article, Sen. Nelson Aldrich, chairman of the Senate Finance Committee, organized the clandestine meeting.
“He told a handful of New York bankers to go on a given night, one by one, to a train station in New Jersey. There they would find a private rail car hitched to the back of a southbound train. To conceal their identities, Aldrich told the bankers to come dressed as duck hunters and to address each other only by first name.”
No. That’s not sketchy at all.
Anyway, the rest, as they say, is history. The plan drawn up during that secret meeting was put into action and today the Fed is running off dollar bills at a dizzying pace in the basement of the Eccles Building.
OK. Not literally. But basically, that’s what’s happening.
At any rate, I wasn’t at a secret meeting on Jekyll Island to hatch a plan to control the world’s financial system. I was hanging out with a bunch of libertarians who would prefer to concoct a plan just to leave you alone.
The Mises Institute held its annual supporters’ summit there.
Given the location, you won’t be shocked to know that there was a lot of discussion about the central bank and its pernicious effects. As I have written, the Fed is the engine that powers the most powerful government in the history of the world.
But the event wasn’t just about the Fed. The broader theme was the danger of centralizing government.
Historian and author Amity Shlaes kicked things off with a talk about Arthur Burns. He was the Federal Reserve chairman appointed by President Richard Nixon. He was supposed to be one of the “good guys.” He was an advocate for free markets, sound money, and the gold standard. But over time, Nixon badgered and bullied him into artificially lowering interest rates and signing off on economic “reforms” that included severing the dollar from its last connection to the gold standard. Burns cared more about maintaining his reputation and popularity among the ruling elite than his principles. His position went to his head.
The lesson here is that we aren’t going to fix things by putting “good people” in positions of power. Power corrupts. The problem is a system that places too much power in the hands of corruptible individuals. The solution is to decentralize and limit the power, not vain attempts to find the right guy to fill certain positions.
That theme carried over through the rest of the event and a number of speakers touched on this subject. Peter Klein talked about the expansion of government during crises, noting that, “The New Deal is a logical extension of policies that came about in World War I.” Tom Woods carried that idea forward in his talk about government shutdowns of the economy in response to covid-19. Judge Napolitano talked about the constitutionality of a central bank, taking the discussion all the way back to the establishment of the First Bank of the United States over the constitutional objections of James Madison and Thomas Jefferson. His narrative reinforced the sad reality that power often corrupts even those with the best of intentions.
Mises Institute president Jeff Deist tied everything together in his talk about decentralization. He noted that centralized authority leads to never-ending fights over control of the power levers, pointing out that “politically vanquished people never really go away.” The only real solution is to split into smaller units and let different groups of people do their own thing. As Deist said, “Political arrangements exist to serve us, not the other way around.”
This captures the essence of the American constitutional system. It was intended to be decentralized with very little power vested in the general government. Most decision-making was intended to happen at the state and local level.
The Constitution serves as a starting point for decentralization.
This post originally appeared here.
The ascent refers to the difficult climb nations face as they “come back from the depths of crisis.” It promises to be “long, uneven and uncertain,” as explained by the International Monetary Fund (IMF) Managing Director Kristalina Georgieva, at an event hosted by the London School of Economics (LSE). This “path forward” for the 189 member countries serves as a precursor to the IMF’s 2020 Annual Meetings which commenced this week. A great deal of effort has gone into these economic plans, yet the question remains: Is this actually economics?
According to the director, the “whatever it takes” approach by advanced economies greatly helped the situation and “put a floor under the world economy.” As she tells it :
We have reached this point, largely because of extraordinary policy measures that put a floor under the world economy. Governments have provided around $12 trillion in fiscal support to households and firms.
A $12 trillion “floor” laid by government cannot be substantiated. We don’t know whether the floor would have been there if the government support did not take place. Nor can the various pernicious effects, such as loss in purchasing power, increase in cost of living, and greater world reliance on debt can be factored into the cost of said floor.
Even though she praises the increase to the money supply, she notes that risk remains high due to rising bankruptcies and stretched valuations in financial markets. She goes on to say many countries have become vulnerable and:
We estimate that global public debt will reach a record-high of about 100 percent of GDP in 2020.
While implied world debt levels are concerning, debt levels have long taken a back seat to central planners, especially in times of crisis. This is fortunate because heavy debt-laden/ inflationist policies underline the IMF’s four priorities:
First, defend people’s health.
This includes coordinated vaccine efforts, distribution and contact tracing. It seems out of scope for the IMF considering it’s an economic, not a health organization. This would be akin to the World Health Organization discussing the need for central banks to reign in their balance sheet!
Second, avoid premature withdrawal.
They agree “tax deferrals, credit guarantees, cash transfers, and wage subsidies,” should be given to firms and workers. This may sound promising but the sheer allocation of resources is beyond comprehension. These interventions could initially help, yet the government would never know if the positive effects of the program outweighs the negatives. If a wage subsidy, for example, leads to higher consumer prices and a higher national debt level, the government would have no basis to know if the effort and various trade-offs were worthwhile.
But it doesn’t stop on the fiscal side as the IMF notes the equal importance of “continued monetary accommodation and liquidity measures to ensure the flow of credit, especially to small and medium-sized firms.” Unfortunately, this too is problematic. Any notion of the optimal level of liquidity cannot be measured and immeasurable goals are normally difficult to achieve.
Third, flexible and forward-leaning fiscal policy.
This explicitly calls for governments to reallocate capital and labor to support the transition, requiring both “stimuli for job creation, especially in green investment,” as well as measures such as expanded unemployment insurance. This follows the pattern of governments using money to take action which cannot be reasonably calculated or justified, but acceptable since it’s perceived preferable than to “do nothing.”
Fourth, deal with debt.
For low-income countries especially, the goal is to create “more grants, concessional credit and debt relief, combined with better debt management and transparency.” This includes restructuring of sovereign debt. As many countries continually struggle with national bankruptcy because of debt, it’s ironic more debt would be a solution.
Piecing it together, we find there may be a long ascent after all; not the struggle of having the IMF corral the world to embrace more anti-capitalist policies, but the struggle required to build a future where the IMF ceases to exist. While a tall order, it seems justified considering the economic methods employed by the IMF appear devoid of economic explanation.
Tuesday’s speech by Fed Chair Jerome Powell began with the usual nod to the pandemic for making life difficult for the masses, followed by the various pats on the back for the central bankers and what they have done in fighting the problems caused by COVID. Powell even praised the government, noting “the fiscal response was truly extraordinary,” thanks to the $3 Trillion of “economic support” under the CARES Act as well as several other lesser known bills.
The Paycheck Protection Program (PPP), was also mentioned, which, according to the Chair, “partly forestalled an expected wave of bankruptcies and lessened permanent layoffs.”
A few weeks ago the cost was noted by Randal Quarles, Vice Chair for Supervision:
The PPP disbursed $525 billion in loans to businesses through August 8, most of which will be forgiven…
As of August 8, there was still another $134 Billion of forgivable loans remaining in the program.
Powell continued, explaining that the market appeared to be normal again and praised “highly accommodative” monetary policy. Yet despite the self-congratulations, things took a bit of a turn when he re-visited the fiscal side of central planning, saying the “expansion is still far from complete,” and that :
Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth. By contrast, the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste.
He concluded that both monetary and fiscal policy should be used “side by side” until, again, in his own words, the economy is “clearly out of the woods.” Yet it’s difficult to know just how long getting out of the woods will take. Whether it requires a forced vaccination or an inflation rate sufficient to satisfy central bankers remains to be seen.
While the continual push for fiscal support from the Fed is concerning, it was the Q and A which delivered the final blow:
So at least I guess I would start by saying that the U.S. Federal budget is on an unsustainable path, has been for some time.
It appears Powell read the Congressional Budget Office (CBO) on September 2, the budget outlook to 2030 which predicts a:
federal budget deficit of $3.3 trillion in 2020, more than triple the shortfall recorded in 2019, mostly because of the economic disruption caused by the 2020 coronavirus pandemic and the enactment of legislation in response.
But it gets worse:
CBO now projects a cumulative deficit over the 2021–2030 period of $13.0 trillion…
Keep in mind the US National Debt has recently passed the $27 Trillion mark, which puts the 2030 National Debt prediction closer to $40 Trillion by 2030. Of course, the kneejerk response should be that this 10-year budget projection is well off the mark.
Consider that in March of this year, the CBO underestimated the 2020 budget by $2.2 Trillion. Now we’re being asked to believe they can project a decade into the future, with the assumption that for the next 10 years the deficit will “only” amount to a little over $1 Trillion a year. That’s a tough sell!
Concerned citizens should begin to wonder how well the CBO can predict the outcome of COVID-19, future pandemics, wars, market downturns, unfunded liabilities, and all the other unforeseen events which cannot be reasonably factored into a decade long budget model. Additionally, we’ve been given little to no assurance that the Fed or the US Government ever intend to stop these short-term lending programs and stimulus checks, ever again.
A reporter summed it up the best with one question:
If we look back 10 years from now at the policy that has just been implemented, what would be signs of success?
Powell addressed the issues of providing stability and relief, supporting the expansion, and avoiding long run damage to the economy; however, we know that looking back 10 years from now, if nothing is done to limit the powers of the Federal Reserve and the US Government, we will be in a world of pain. The US Debt will be much higher than $40 Trillion. Stocks, bonds and real estate prices will be making new highs. Yet, most people will find they are no better off than they were a decade ago.
House financial services chair Maxine Waters and Senator Elizabeth Warren have introduced the Federal Reserve Racial and Economic Equity Act. This legislation directs the Federal Reserve to eliminate racial disparities in income, employment, wealth, and access to credit.
Eliminating racial disparities in access to credit is code for forcing banks and other financial institutions to approve loans based on the applicants’ race, instead of based on their income and credit history. Overlooking poor credit history or income below what would normally be required to qualify for a loan results in individuals ending up with ruinous debt. These individuals will end up losing their homes, cars, or businesses, because banks disregarded sound lending practices in an effort to show they are meeting race-based requirements.
Forcing banks to make loans based on political considerations damages the economy by misallocating resources. This reduces economic growth and inflicts more pain on lower-income Americans.
The Carter-era Community Reinvestment Act has already shown what happens when the government forces banks to give loans to unqualified borrowers. This law played a significant role in the housing boom and subsequent economic meltdown. The Federal Reserve Racial and Economic Equity Act will be the Community Reinvestment Act on steroids.
This legislation also requires the Fed to shape monetary policy with an eye toward eliminating racial disparities. This adds a third mandate to the Fed’s current “dual mandate” of promoting a stable dollar and full employment.
Federal Reserve chair Jerome Powell has already publicly committed to using racial disparities as an excuse to continue the Fed’s current policy of perpetual money creation. Since inflation occurs whenever the Fed creates new money, Powell and his supporters want a policy of never-ending inflation.
Supporters of this scheme say that inflation raises wages and creates new job opportunities for those at the bottom of the economic ladder. However, these wage gains are illusory, as wages rarely, if ever, increase as much as prices. So, workers’ real standard of living declines even as their nominal income increases. By contrast, those at the top of the income ladder tend to benefit from inflation, as they receive the new money—and thus an increase in purchasing power—before the Fed’s actions cause a general rise in the price level. The damage done by inflation is hidden and regressive, which is part of why the inflation tax is the most insidious of all taxes.
When the Fed creates new money, it distorts the market signals sent by interest rates, which are the price of money. This leads to a bubble. Many people who find well-paying jobs in bubble industries will lose those jobs when the bubble inevitably bursts. Many of these workers, and others, will struggle because of debt they incurred because they listened to “experts” who said the boom would never end.
The Federal Reserve’s manipulation of the money supply lowers the dollar’s value, creates a boom-and-bust business cycle, facilitates the rise of the welfare-warfare state, and enriches the elites, while impoverishing people in the middle and lower classes. Progressives who want to advance the well-being of people in the middle and lower classes should stop attacking free markets and join libertarians in seeking to restore a sound monetary policy, The first step is to let the people know the full truth about the central bank by passing the Audit the Fed Bill. Once the truth about the Fed is exposed, a critical mass of people will join the liberty movement and force Congress to end the Fed’s money monopoly.