Power & Market
2019 was the year that the blood-test requirement for marriage was finally abolished in all 50 US states.
This past March, the governor of Montana signed the legislature's bill abolishing the state's requirement that women submit to blood tests to be screened for rubella prior to the granting of a marriage license.
Technically, Montana had removed the absolute mandate in 2007, but the change would only "allow brides to opt out after signing an acknowledgement of the pregnancy risks related to rubella, and only if the groom signs too. Otherwise, the female applicant must provide a medical certificate signed by a physician stating that she has been tested or is exempt for medical reasons."
The 2019 legislation now completely removes the requirement.
Montana was the only remaining state with a blood test requirement. As recently as 1980, though, 34 states still had laws on the books requiring blood tests before marriage. Kasey S. Buckles, Melanie Guldi, and Joseph Price provide a concise summary of the legislative trend:
Of these 34, 19 states repealed their law in the 1980s, 7 repealed in the 1990s, and 7 more repealed between 2000 and 2008, leaving only Mississippi with a BTR in 2009.
(Buckles, et al,counted the Montana "opt out" as abolition, leaving only Mississippi.)
Mississippi ended its requirement in 2012.
But why was there ever a requirement at all?
Like so many invasive procedures mandated by governments, mandatory blood tests for couples seeking marriage licenses were a product of the age of eugenics and Progressive politics — two things that often go together.
As Ruth C. Engs notes in The Progressive Era's Health Reform Movement : "'Racial improvement' through positive eugenics, such as marriage to a healthy individual, [and] blood tests for syphilis prior to marriage ... were promoted for improving the 'race,' thus leading to a healthier nation."
The rights of individuals to marry whom they wished was thus swept aside in the name of "hygiene" and public health. Blood tests took their place along with prohibitions on interracial marriage as a means of "racial improvement."
Between 1980 and 2008, abolition was more a function of medical treatment options rather than any commitment to medical freedom or marriage freedom.
Buckles, et al note:
Historically, many states have required applicants for a marriage license to obtain a blood test. These tests were for venereal diseases (most commonly syphilis), for genetic disorders (such as sickle-cell anemia), or for rubella. The tests for syphilis were part of a broad public health campaign enacted in the late 1930s by U.S. Surgeon General Thomas Parran. Parran argued that premarital testing was necessary to inform the potential marriage partner of the risk of contracting a communicable disease, and to reduce the risk of birth defects associated with syphilis. According to Brandt (1985), "by the end of 1938, twenty-six states had enacted provisions prohibiting the marriage of infected individuals." Screenings for genetic disorders and for rubella were also implemented in the interest of minimizing the risk of genetic disease or birth defects in the couple's offspring.
Buckles, et al., note that it soon became apparent that the cost of the mandate was very high and benefits were quite low:
In the case of syphilis, however, it was soon recognized that premarital blood testing was not a cost-effective way to screen for the disease. Despite reports that 10% of Americans were infected, only 1.34% of applicants in New York City's first year of testing were found to have the disease. Brandt (1985) notes that a premarital exam was "not the optimal locus for screening," since couples seeking to marry were not likely to be in the most at-risk groups, and individuals who knew they were infected could wait until the infection cleared to apply for a license. ... Nationwide, couples spent over $80 million to reveal 456 cases.
By the 1980s, sexually-transmitted diseases were far more treatable than was the case in the 1930s. This lessened the importance of alerting future sex partners about one's health status. (This theory, of course, relies partly on an assumption people rarely have sex outside marriage — a view that was rather fanciful even in the 1930s.)
Nonetheless, abolition was not just a matter of deliberation over the medical efficacy of the laws. Ordinary people never appeared to be enthusiastic about the mandates, and many resented the additional hoops they needed to jump through to carry on with their personal lives.
It should surprise no one, then, that couples actively sought to avoid the costly and time-consuming test requirements.
Blood test requirements led to couples choosing to marry in states that did not have the mandates: "it appears that about one-third of the decrease in licenses is due to couples marrying out of state, while about two-thirds choose not to marry at all."
So, it turns out the mandated blood tests worked to discourage marriage while doing little to actually identify people with disease or improve public health.
The mandate was great for the medical industry, however, since it required the payment of many millions of dollars for otherwise unnecessary medical procedures.
You'll Marry Your Sister!
Another source of confusion over mandated blood tests has been a belief held by some that blood tests were used to screen for the "marry-your-sister" problem. That is, some think that blood-test mandates exist for purposes of genetic testing.
Unlike tests for venereal disease, however, genetic testing for consanguinity is very expensive, and has never been generally mandated by states. The issue could much more cheaply and pragmatically be addressed by granting people the legal right to know who their biological parents are, when the information is available. Cases of consanguinity are generally tied to cases when a marriage partner has been adopted, abandoned, or otherwise is unaware of his or her biological parents.
Conflicting Messages on Medical Freedom
It may be, however, that the abolition of one violation of medical freedom could be replaced by another.
After all, Montana's blood-test requirement was justified on the grounds that it prevented health problems for a third party. That is, if a woman with rubella becomes pregnant, this can have devastating effects on the developing fetus. Functionally, it was more a pre-pregnancy requirement than a pre-marriage requirement.
Just as modern treatments for STD lessened the need to test for syphilis ahead of time, the need for pre-pregnancy testing for rubella was largely supplanted by the prevalence of vaccines against rubella. Will the repeal of the rubella blood test signal a renewed drive toward mandatory rubella vaccination in Montana? For now, efforts to remove all non-medical exemptions for vaccines are concentrated in states like New York and California. But the issue is certainly not confined only to these places.
It should not be assumed the movement toward abolishing blood tests was motivated by libertarian impulses.
The Royal Swedish Academy of Sciences has awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2019 to Abhijit Banerjee (Massachusetts Institute of Technology) and to his wife Esther Duflo (Massachusetts Institute of Technology) and to Michael Kremer (Harvard University).
From the Nobel committee:
Despite recent dramatic improvements, one of humanity’s most urgent issues is the reduction of global poverty, in all its forms. More than 700 million people still subsist on extremely low incomes. Every year, around five million children under the age of five still die of diseases that could often have been prevented or cured with inexpensive treatments. Half of the world’s children still leave school without basic literacy and numeracy skills.
This year’s Laureates have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty. In brief, it involves dividing this issue into smaller, more manageable, questions – for example, the most effective interventions for improving educational outcomes or child health. They have shown that these smaller, more precise, questions are often best answered via carefully designed experiments among the people who are most affected.
In fact, these laureates are government technocrats who think at the government level rather than at the foundational level where an appreciation for free markets would make their work useless.
The Nobel committee:
As a direct result of one of their studies, more than five million Indian children have benefitted from effective programmes of remedial tutoring in schools. Another example is the heavy subsidies for preventive healthcare that have been introduced in many countries.
One has to ask, do these three seriously believe they have the answer for five million Indian children rather than leaving things up to the free market where multiple options would develop (without political interference)?
And political interference is not a theoretical question.
Alex Tabarrok reports on one type of interference (one of potentially many kinds):
[W]hen they tried to institute a similar program for nurses in Putting a Band-Aid on A Corpse the program was soon undermined by local politicians and “Eighteen months after its inception, the program had become completely ineffective.”
And government subsidies for preventive healthcare? That is the government, deciding what is proper preventative healthcare, is taken seriously. In other words, the vegans, ketos and paleos get to battle it out to see who gets influence over health policies rather than leaving options?
How confused are these three?
Naturally, they are concerned with politically correct questions.
Duflo and Banerjee have conducted many of their field experiments in India and have looked at not just conventional questions of development economics but also at politics. In 1993, India introduced a constitutional rule that said that each state had to reserve a third of all positions as chair of village councils for women. In a series of papers, Duflo studies this natural experiment which involved randomization of villages with women chairs. In Women as Policy Makers (with Chattopadhyay) she finds that female politicians change the allocation of resources towards infrastructure of relevance to women. In Powerful Women (Beaman et al.) she finds that having once had a female village leader increases the prospects of future female leaders, i.e. exposure reduces bias.
Then there are just silly, poorly constructed models.
Before Banerjee became a randomistas he was a theorist. His A Simple Model of Herd Behavior is also a favorite. The essence of the model can be explained in a simple example (from the paper). Suppose there are two restaurants A and B. The prior probability is that A is slightly more likely to a better restaurant than B but in fact B is the better restaurant. People arrive at the restaurant in sequence and as they do they get a signal of which restaurant is better and they also see what choice the person in front of them made. Suppose the first person in line gets a signal that the better restaurant is A (contrary to fact). They choose A. The second person then gets a signal that the better restaurant is B. The second person in line also sees that the first person chose A so they now know one signal is for A and one for B and the prior is A so the weight of the evidence is for A and the second person also chooses restaurant A. The next person in line also gets the B signal but for the same reasons they choose A. In fact, everyone chooses A even if 99 out of 100 signals are B. We get a herd. The sequential information structure means that the information is wasted. Thus, how information is distributed can make a huge difference to what happens.
Does Banerjee seriously think that restaurants are just signal takers subject to the herd? That they will do nothing to signal the benefits of their restaurants? This model has nothing to do with reality.
The Prize awarded for this silly work is 9 million Swedish krona ($916,000), to be shared equally between the three.
Originally published at Economic Policy Journal
This issue contains selected lectures, papers, and abstracts of papers presented at the 2019 Austrian Economics Research Conference in Auburn, Alabama. Articles include Daniel Ajamian's "The Cost of the Enlightenment," Michael Rectenwald's "Libertarianism(s) versus Postmodernism and 'Social Justice' Ideology," Edward Fuller's "Keynes and the Ethics of Socialism," Jeffery Degner's "Family Formation, Fertility, and Failure: A Literature Review on Price Increases and Their Impact on the Family Institution," and more.
The United States itself has about a zero-percent risk of being invaded from any foreign power. This has been clear since 1945 that the Navy and nuclear arsenal make invasion of the US both politically and practically impossible for any foreign regime. The US Army could be totally abolished this afternoon without in any way increasing the risk of foreign military action against the US in North America.
The invincibility of the military itself, on the other hand, is something different. After all, the US military is mostly in the business of doing things other than protecting the borders of the United States. It primarily worries about projecting its power into every corner of the globe, propping up dictators in places like Egypt and Saudi Arabia, and bossing around foreign regimes that are no threat to the United States.
But most of this has long been based on the assumption that the US can do anything it wants to any country without any fear of significant repercussions to its allies anywhere.
Those days are rapidly coming to an end.
In the UK's Independent last week, Patrick Cockburn noted that some important targets are now sitting ducks, and the US and its allies have no economical defense:
On the morning of 14 September, 18 drones and seven cruise missiles – all cheap and unsophisticated compared to modern military aircraft – disabled half of Saudi Arabia ’s crude oil production and raised the world price of oil by 20 per cent.
This happened despite the Saudis spending $67.6bn (£54bn) on their defence budget last year, much of it on vastly expensive aircraft and air defence systems, which notably failed to stop the attack. The US defence budget stands at $750bn (£600.2bn), and its intelligence budget at $85bn (£68bn), but the US forces in the Gulf did not know what was happening until it was all over.
...a middle ranking power like Iran, under sanctions and with limited resources and expertise, acting alone or through allies, has inflicted crippling damage on theoretically much better-armed Saudi Arabia which is supposedly defended by the US, the world’s greatest military super-power.
...If the US and Saudi Arabia are particularly hesitant to retaliate against Iran it is because they know now, contrary to what they might have believed a year ago, that a counter-attack will not be a cost-free exercise. What happened before can happen again: not for nothing has Iran been called a “drone superpower”. Oil production facilities and the desalination plants providing much of the fresh water in Saudi Arabia are conveniently concentrated targets for drones and small missiles.
In other words, the military playing field will be a lot more level in future in a conflict between a country with a sophisticated air force and air defence system and one without. The trump card for the US, Nato powers and Israel has long been their overwhelming superiority in airpower over any likely enemy. Suddenly this calculus has been undermined because almost anybody can be a player on the cheap when it comes to airpower.
Meanwhile, the US is pouring money into expensive toys like the F-35 which after more than a trillion dollars offer no defense against dirt-cheap drones:
Compare the cost of the drone which would be in the tens or even hundreds of thousands of dollars to the $122m (£97.6m) price of a single F-35 fighter, so expensive that it can only be purchased in limited numbers. As they take on board the meaning of what happened at Abqaiq and Khurais oil facilities, governments around the world will be demanding that their air force chiefs explain why they need to spend so much money when cheap but effective alternatives are available. Going by past precedent, the air chiefs and arms manufacturers will fight to their last breath for grossly inflated budgets to purchase weapons of dubious utility in a real war.
It is unknown how long it will take for US military planners to accept "that they command expensive, technically advanced forces that are obsolete in practice. This means they are stuck with arms that suck up resources but are, in practical terms, out of date."
This doesn't mean, of course, that the US has no options here. The US could engage in a full-scale war against Iran, killing hundreds of thousands of Iranians and spending trillions. The number of US casualties would be very small by comparison, but probably not trivial. This bloodbath eventually incapacitate the Iranian state, but not before Iran destroyed the flow of oil out of the Persian gulf, and extracted its pound of flesh from US allies such as Saudi Arabia and Israel.
The effect on rivals like China and Russia would be electrifying as well, since the US would then be viewed as having slipped the bonds of rational foreign policy.
This means the situation now is far different from what it was before. But don't expect the Pentagon to act any differently. It will keep demanding trillions of dollars for weapons of war designed to fight a 1960's-style war. But that all sounds perfectly reasonable in a place like Washington, DC where both Capitol Hill and the Pentagon exist in a world of fantasy built on printed money.
- "The F-35: A $1.5 Trillion Boondoggle" by Elijah Henry
- "The F-35: Poster Child for Pentagon Boondoggles" by Gary Goldman
- The Trillion-Dollar Military Still Isn't Enough for the War Party by Ryan McMaken
“Because liberty is so fragile, its true defender recognizes that war is its greatest enemy, and therefore the true patriot is often the courageous individual who opposes a particular war because he recognizes that it is unjust — that it would be fought for the wrong purposes or that the risk for the loss of liberty is greater than any benefit to be gained by the war.” - John V Denson
If we have freedom: are we not responsible for what we do and what we fail to do? History is littered with stories about valor and bravery on the battlefield. Men who went off to war, who fought, and died. But what about the men who refused to fight?
The World War II draft operated between 1940 - 1946, and inducted some 10 million men into forced military service. Of those 10 million men, approximately 72,000 were conscientious objectors, of which 25,000 entered the military in noncombatant roles, another 12,000 went to civilian work camps, and as Robert Higgs points out in the book, The Cost of War :
The government also imprisoned nearly 6,000 conscientious objectors- three-fourths of them Jehovah’s Witnesses- who would not comply with the service requirements of the draft laws.
One of those American conscientious objectors was Desmond Doss. During World War II he refused to carry a weapon and kill the enemy. Despite this, he is credited with saving 75 of his fellow soldiers during the Battle of Okinawa. To this day he is the only conscientious objector to receive the Medal of Honor for his actions on the battlefield.
Franz Jägerstätter was not as lucky as Desmond Doss. He was an Austrian conscientious objector during World War II who refused to fight for Nazi Germany. On February 23, 1943, he was drafted to serve and on March 1, 1943, upon entering into the Wehrmacht garrison, he declared his Conscientious Objector status and offered to serve as a paramedic instead. His offer to serve as a paramedic was ignored and he was arrested and later killed for refusing to fight for Hilter. He left behind a wife and three children.
These were men who dared to say no to war and murder and these are just two examples out of 1,000’s of men during that war. Why did these men oppose war? People may profit from studying their examples. For, As Lew Rockwell once pointed out :
“We don’t oppose the state’s wars because they’ll be counterproductive or overextend the state’s forces. We oppose them because mass murder based on lies can never be morally acceptable. So 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.”
Conscientious Objectors refused to be pawns and knew that war was morally unacceptable, with some paying the ultimate price. Sadly, in a sense, there is a case to be made that these Conscientious Objectors were the only ones who truly did their job and upheld their oath.1 For all members of the military are instructed: they have a duty to obey all lawful orders, and conversely, they also have a duty to disobey unlawful orders. This principle is embedded in the precedent of the Nuremberg Trials whereby Nazi war criminals invoked the “just following superior orders defense” and were nevertheless found guilty as the orders were found to be illegal. It is worth noting at this point, that illegal orders can happen at any time, wartime or peacetime, civilian or military.
Does ‘Conscientious Objection’ relate only to war and military personal? Or, are there other circumstances to which this term may be applied? I contend that conscientious objection can and should apply to a variety of circumstances other than war, for example whenever morality and ethics are at play. Objections based on one’s conscience may arise in numerous and more mundane circumstances. The world would be a much better place if the principles of conscientious objections were more universally applied, and daily.
Consider this, the category of human action can refer to either an action, or an inaction. Both actions and inactions potentially have value, as Ludwig von Mises noted:
“For to do nothing and to be idle are also action, they too determine the course of events.”2
Let’s ask ourselves: Is Patriotism defined as blind obedience to governmental authority? Can saying ‘no’ be more heroic than saying ‘yes’, when your conscience tells you its wrong that the Government requires innocent blood on your hands? As the Afghanistan war enters its 18th year, it’s long past time we reconsider the examples set by those who conscientiously objected to war. In the words of the late Justin Raimondo,
“We have to show the American People that war is not patriotic.”
- 1. Murray Rothbard noted that “ There have been only two just wars in American history that were, in my view, assuredly and unquestionably proper and just.”
- 2. Murray Rothbard also stated in Man, Economy, and State that “Action does not necessarily mean that the individual is ‘active’ as opposed to ‘Passive,’ in the colloquial sense.”; See also Carl Menger’s discussion of useful inactions in Chapter 1, Principles of Economics.
This past week Trump’s Energy Department announced a relaxation of a set of light-bulb energy efficiency standards ( EISA ) first implemented under George W. Bush and finalized under Obama. The standards were set to go into full effect in January 2020 (eliminating incandescent versions of three-way bulbs, candle-shaped, globe-shaped and reflector bulbs).
The autistic screeching from the corporate press and leftist “public policy” lackeys only underscores the lengths to which “ the Cathedral” will go to in order to maintain the hell-fire of climate alarmism. For Cathedral adherents the sky is quite literally falling. It is because of their prescient guidance that the rest of us are corralled into doing “the right thing” – namely spending $10 on a bulb to save $15 in electricity – over the next 30 years. Even though the market has always deprecated older technology in favor of newer, we just can’t wait when it comes to energy efficiency. In the words of New York Times columnist John Schwartz , we need the federal government to “force(d) Americans to use more energy-efficient light bulbs.” Please note that “force” here is a politically correct euphemism for “threaten with initiatory violence”. Now it is true, force can solve problems quickly. All the mugger needs to do is to wave his gun in my face and moments later his monetary problems are solved. One would like to believe that in the “land of the free” such state sponsored aggression would not be so readily lauded as the primary method deployed against perceived societal problems. Of course I do not expect the state to abjure this special power it has any time soon, it is the qua sine non of every state/government. When a such a body dictates to the citizenry what they may or may not manufacturer and buy, then that country is no longer entitled to call itself “the land of the free” or claim “liberty and justice for all.”
One of the more vocal critics of this rollback, an Andrew deLaski of the Appliance Standards Awareness Project went on record with some rather eyebrow-raising comments. For example
“The Trump administration is trying to protect technology that was first invented in the 1800s. It’s like trying to protect the horse and buggy from the automobile technology.”
Correct me if I’m wrong, but as I recall the government did not OUTLAW the sale or manufacture of the horse and buggy in favor of promoting the automobile. Consumers transitioned to the newer technology over time at a rate mediated by both the cost and advantages of the new technology.
To imply that removing regulations that are annihilating an industry is equivalent to “protecting” said industry makes about as much sense as saying someone who was in the process of knifing you to death but then pauses and begins to only punch you in the face is actually now “protecting” you. The truth is the polar opposite. The manufacturers of fluorescent and LED bulbs are the ones receiving state protection insofar as competing technology have being outlawed. But we’re “protecting” the planet so greater good trumps all. Makes one wonder what the left is capable of when they eventually hold power and the climate apostates are in their cross hairs. In the words of Cole Porter I suspect it will be “anything goes!”
Politicians from Alexandria Ocasio-Cortez to Dick Cheney are united in their agreement that deficits don't matter. Of course, that's exactly what a politician would say. Politicians score points by spending other people's money, so naturally, they don't want to hear anything about how prudence suggests it might be a good idea to not spend that extra 800 billion dollars they don't have.
But there is apparently little concern in Washington, DC as the annual deficit — for a single year, mind you — approaches one trillion dollars for the first time since the hit-the-panic-button days of the Great Recession. Except that now huge deficits are coming during "good" economic times.
Moreover, as the Congressional Budget Office has forecast, the debt load is expected to rise to 125 percent of GDP over the 20 years. That's higher than the US debt-to-GDP ratio during World War II.
This, of course, assumes no major geopolitical or economic disruptions, whicih would make things far worse.
For those who believe huge debts are no big deal, however, there's still no need to worry. After all, they say, actual debt payments are still only a minor issue. In fact, they're still lower than where they were during the early 1990s.
Consider the first graph, for example. If we take the federal government's interest payments, and calculate them as a percentage of federal tax revenue, we find 12 percent of what the feds take in has to paid out as interest. Back during the early nineties, on the other hand, the feds were paying more than twenty percent of their tax revenue toward debt service.
Source Office of Management and Budget and US Bureau of Economic Analysis.1
Of course, that's not all due to debt load. A lot of it depends on the interest rate. Back in late 1990, for example, the target federal funds rate was over 7 percent. The 10-year note rate was around seven percent also — compared to around two percent today. Not surprisingly, the feds were paying more on the debt they owed than under current conditions with a note rate of two percent.
But, the CBO estimates the 10-year note rate to double between now and 2020. I'm skeptical it will rise that fast from its current low levels, but when it does go up, so will the amount of money the federal government has to devote to servicing the debt. And that means cuts to things like defense, social security, and medicare.
Moreover, as the debt gets bigger and bigger, the need to keep the interest rate low via central bank "quantitative easing" will become more important, meaning middle class savers will take more of a hit to savings accounts and pension plans.
But perhaps the most striking aspect of the growing debt is the fact there really is no end in sight, and the US has no chance of ever paying off the debt.
We can see this when we compare the total size of the debt with government revenue.
Comparing Debt to Tax Revenue
Part of the reason people have a hard time comprehending the sheer size of the debt is because it is often compared to total GDP size. For example, it's easy to find online that the US debt-to-GDP ratio right now is around 105 percent. But what does that mean? One problem we encounter here is the fact when it comes to personal debt, people don't think of making debt payments as a percentage of their household "GDP." That wouldn't make much sense since the ability to pay off debt usually depends on income.
So what is the national debt as a percentage of the federal governments income? Income, in this case is the federal government's tax revenue. And it turns out by this measure, we're in uncharted waters.
In fact, the national debt is now eleven times annual federal revenue. And as far as I can tell, that's the highest it's ever been. (In 1945, the national debt was $251 billion, and tax receipts were $45 billion, meaning the national debt was 5.6 times tax revenue that year.)
Specifically, in 2018, the national debt ($21.4 trillion) was 10.9 times the size of annual tax receipts ($1.9 trillion). That's even higher than what it was during the dark days of the "stimulus" following the great recession. In 1981, on the other hand, the total debt load was only two-and-a-half times annual tax receipts.
From the perspective of household management, this is easier to comprehend. For example, if a household has an income-to-debt ratio like the federal government, that would mean an annual income of $100,000 and a debt load of a million dollars.
Now, at ultra low interest rates, if payments are interest-only, and non-debt-related daily expenses are fairly low, one could certainly manage this. But there are risks here. Interest rates could go up. Other expenses could rise. And in the end, the great-grandchildren are still paying off the debt for vacations and fancy trinkets their ancestors bought decades earlier. Even worse, if interest rates go up significantly, one's great grandchildren have a lower standard of living because they have to devote more and more of their possible savings and consumption to unproductive debt service.
None, of this, however, is likely to convince those who think debt doesn't matter. Some may still cling to the idea that the government can just print more money and purchase bonds to drive down interest and make payments.There are at least two problems that emerge here. The constant forcing down of interest rates is a problem for those who rely on pension funds and other investments that need relatively lower-risk yield to grow. Meanwhile, households that are on fixed incomes will be harmed by growing inflation, if it takes the form of consumer price inflation. If, on the other hand, the money-supply growth leads to asset -price inflation (which is what we have now) then this will make housing more unaffordable, while locking out lower-income and lower-net-worth people from a variety of assets, such as homes.
Now, none of this is an apocalyptic scenario, but it is a scenario in which people with low and moderate incomes must pay more, and are able to save less and invest less. It's a scenario of a standard of living that in decline. It's a scenario in which much of the population faces more roadblocks to wealth accumulation and must devote increasing levels of income and resources to paying off the debts of past generations. Government amenities such as welfare payments and transportation facilities must also shrink as more tax revenue must be spent on debt service. And, of course, the tax burden on ordinary people certainly won't be going down.
- 1. For interest payment information, see Table 3.2 from OMB's historical tables. https://www.whitehouse.gov/omb/historical-tables/
While Americans contemplated Jeffrey Epstein’s demise, Chinese authorities had more pressing matters as the country’s third bank was bailed out late last week. HengFeng Bank with $200 billion in assets fell into the hands of “Central Huijin Investment, a subsidiary of the China Investment Corporation that acts as the Chinese government’s shareholder in the country’s four biggest banks,” according to a brief report overnight by Shanghai Securities News, published by state news agency Xinhua and cited by Zero Hedge.
Prior to HengFeng, Bank of Jinzhou was propped up using “state-owned strategic investors,” according to Dai Zhifeng, analyst with Zhongtai Securities Co.
In plainer terms, Zero Hedge reports ,
“The latter approach is more market-oriented and showcased the determination of regulators to resolve problematic banks, while injecting confidence into the market,” Dai said, although when stripped of all the pig lipstick, what just happened in China is that another major bank, one with $100 billion in assets, just collapsed and received a government-backed rescue.
China’s banks hold $30 trillion in deposits according to Alexander Campbell, more or less double the amount of aggregated U.S. bank deposits. Campbell was pitching Alex Rosenberg on Real Vision on his thesis of buying gold in Yuan terms with the idea that bank bailouts take a flood of central bank created fiat money to paper over. So while the Chinese may want to keep the Yuan near the 7 to the dollar range, bank busts are just beginning in China and 7 may become a distant memory.
Campbell’s view is,
Bank of Jinzhou just went under, Baoshang went under. They're providing liquidity while trying to take out the small guys.
There's some big guys coming up. Industrial Bank looks fine. But by all of our metrics, it's the sketchiest big bank. Minsheng is not that far behind them. If you start to get those banks under question, the liquidity that they have to provide to offset the deleveraging, the negative liquidity from bank runs will be so big that I think the question of do you want to keep seven is obvious. And you say, no, who cares? Like, let's have it go down. And let's stimulate the economy. I think the cruxy thing, and the thing for the trade then is will do we print money as well?
China’s rural banks have classified loans totaling 4.1% which may not sound bad, but is the equivalent of circling the drain in the fractionalized banking world. ZH cited a JP Morgan report downgrading Chinese banks.
The J.P. Morgan economics team revised down its GDP growth forecast for 2020 by 0.1ppt due to the recent sharp turn in Sino-U.S. trade negotiations. But even prior to that, declining PPI and industrial profits growth, suggesting declining debt-servicing ability and weakening cash flow for Corporate China, increase the risks that banks will be asked to support macro growth at the potential expense of profitability. Recent official PBOC comments on an accelerating interest rate liberalization process are illustrative of such rising risks.
Meanwhile, Donald Trump is thrashing China with tariffs. In a piece for Bloomberg, Stephen Mihm compared Trump’s tariffs with the bad old days of Smoot-Hawley and the failure of Austrian bank, Credit-Anstalt, and the European liquidity crisis which followed.
While FDR finally backed off, Mihm, doesn’t believe Trump will. “Donald Trump is no FDR,” he writes. “Trump isn’t going to get religion and suddenly work for international cooperation on trade and currency before things go off the rails. He’s going to stay the course.”
China will have no choice but to let the Yuan sink versus the dollar as “Beijing has found itself paralyzed and with zero credibly options how to kickstart the economy,” writes ZH.
“The only thing that's left is for China to admit that this is indeed the case, so sit back, relax and watch as bank after bank on the list above fails and China's financial cancer spreads across the country with the $40 trillion in assets (which is certainly not bad news for either gold or Bitcoin).”
When Trump talked about winning, he must have been talking about holders of the yellow metal and its crypto cousin.
The U.S. government is infamously in debt. Since about 2012, the official national debt has equaled or exceeded the GDP. Shockingly, the real fiscal gap is much higher: with our $21.5T GDP and $22.5T official debt, we also have about $200T in unfunded liabilities over the next few decades. Most of that last number is due to programs such as Medicare and Social Security, but our regular debt comes from accumulated deficits: the U.S. government spends more each year than it steals in taxes. Since theft is its primary source of income, this situation is not sustainable.
The single largest item in the 2019 federal budget (contributing heavily to the aforementioned deficits and unfunded liabilities) is Social Security. The second-largest item is defense. The U.S. government spends more on defense than any other country in the world – by far. In fact, it spends about as much as the next eight countries combined. That is to say, the U.S. defense budget is approximately equal to the combined defense budgets of China, Saudi Arabia, India, France, Russia, the United Kingdom, Germany, and Japan.
Is spending of that magnitude necessary, or even remotely justifiable? Probably not. We’ve all heard infamous examples of gross waste and financial incompetence in the DoD – from $21T over a couple of decades that wasn’t correctly accounted for , to $1,280 cups , $999 pliers, and $640 toilet seats.
One of the biggest boondoggles in the U.S. DoD budget – and the focus of this article – is the F-35, AKA the most expensive weapons system in history. And of course, the costs continue to go up, according to a recent DoD report. The Pentagon first put out the project for bids in 1996 , and the first F-35s were manufactured and flown in 2006. However, it wasn’t until 2018 that they saw combat for the first time when Israel deployed them. Since then, the USMC , USAF , and RAF have used them in combat only rarely. For a plane that is supposed to be sufficiently versatile and modular to replace virtually all other combat aircraft , the F-35 has been used very little.
Perhaps you’re wondering if this is a typical timeframe for a high-tech military project. Well, in 2001, the DoD expected to have its first combat-capable F-35s in 2010. That did not happen, not by a long shot. At least as late as 2013, these 5th Generation fighter jets could not fly in bad weather or at night. Despite all this, the F-35 program will cost about $1.5T, or approximately what the U.S. government spent on the entire Iraq war.
Last year, Defense News identified thirteen significant deficiencies in one or more F-35 models: from the possibility of a blown tire destroying the entire aircraft, to inadequate vision and sensor systems , to not being to fly too high, too fast, or in certain maneuvers without either apparent or actual major problems. Other issues included logistical and security concerns. Many of these have solutions in progress, although several additional issues with the weapons systems have been identified since then.
How does a project like this happen, and continue, despite perpetual problems? There are 1,400 subcontractors for the F-35 program, spread out over 307 congressional districts in 45 States. For those of you unfamiliar with the U.S. political system, that means there are 307 Congressmen (out of 435) and 90 Senators (out of 100) who have constituents whose livelihoods depend in whole or in part on the F-35 program.
Even the extraordinarily liberal (and openly socialist) Senator Bernie Sanders claims to oppose the program but supports having it partly based in Vermont, so his constituents can benefit from the subcontracting jobs.
It’s not just U.S. politicians who are financially committed to this disaster: there are eight other countries involved in the development of the F-35.
I don’t have a solution to the issues presented here. Really, since I oppose U.S. involvement in all the wars I’m aware of, I don’t really want to see the F-35 used more than it has been. Probably the myriad problems will be solved eventually, and perhaps most of the money to be wasted in this program has already been spent.
The dull, tired, whiny Old Gray Lady has another opinion piece about America's slavish devotion to free market orthodoxy, but this time with a slight twist: it's economists themselves to blame for the anti-government revolution.
Yet while the article's title held promise —"Blame Economists for the Mess We're In," it turns out the author had no interest in examining economics as a self-serving or compromised profession per se. He merely laments what he sees as its pro-market turn after the high-water mark of academic support for socialism in the 1930s. Thus we get the usual complaints about slashing regulations, antipathy for minimum wage laws, lack of support for unions, and the bipartisan "turn toward markets":
As the quarter century of growth that followed World War II sputtered to a close, economists moved into the halls of power, instructing policymakers that growth could be revived by minimizing government’s role in managing the economy. They also warned that a society that sought to limit inequality would pay a price in the form of less growth. In the words of a British acolyte of this new economics, the world needed “more millionaires and more bankrupts.”
In the four decades between 1969 and 2008, economists played a leading role in slashing taxation of the wealthy and in curbing public investment. They supervised the deregulation of major sectors, including transportation and communications. They lionized big business, defending the concentration of corporate power, even as they demonized trade unions and opposed worker protections like minimum wage laws. Economists even persuaded policymakers to assign a dollar value to human life — around $10 million in 2019 — to assess whether regulations were worthwhile.
And of course no Times piece about economics is ever complete without some boilerplate language about inequality, the great non-issue of our day. As always, egghead economists focus only on their God of efficiency:
They agreed that the primary goal of economic policy was to increase the dollar value of the nation’s output. And they had little patience for efforts to limit inequality. Charles L. Schultze, the chairman of Mr. Carter’s Council of Economic Advisers, said in the early 1980s that economists should fight for efficient policies “even when the result is significant income losses for particular groups — which it almost always is.” A generation later, in 2004, the Nobel laureate Robert Lucas warned against any revival of efforts to reduce inequality. “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.”
It’s time to discard the judgment of economists that society should turn a blind eye to inequality. Reducing inequality should be a primary goal of public policy.
The market economy remains one of humankind’s most awesome inventions, a powerful machine for the creation of wealth. But the measure of a society is the quality of life throughout the pyramid, not just at the top, and a growing body of research shows that those born at the bottom today have less chance than in earlier generations to achieve prosperity or to contribute to society’s general welfare — even if they are rich by historical standards.
This is not just bad for those who suffer, although surely that is bad enough. It is bad for affluent Americans, too. When wealth is concentrated in the hands of the few, studies show, total consumption declines and investment lags. Corporations and wealthy households increasingly resemble Scrooge McDuck, sitting on piles of money they can’t use productively.
It's too bad the author chose to focus on the non-issue of inequality in his critique of modern economics. The Left can't get over its silly perception that modern economists somehow are in thrall to Milton Friedman rather than Keynes, when in fact the former is not the ideologue they imagine while the latter has his DNA deeply woven into every fiscal and monetary stimulus policy.
But the bigger point is not about ideology or policy or political views. Economics has become a lost profession, one that serves economists but not society. Economics is broken, except for those who make their living from it. It doesn't make us richer, or happier, or healthier. It doesn't make us smarter or more knowledgeable. Economics as currently taught and practiced fails to help explain the world — the fundamental role of any social science. Mises was derided by some as a mere "literary economist" for his lack of equations, charts, and graphs, but statistics and mathematical models that don't accurately predict anything are no substitute for the real calling of economics. Working as a quant at an investment bank, or worse yet a central bank, may feel like practicing economics, but it is motion without action.
Economics and economists today are indeed lost, but not in the way the New York Times imagines. The real scandal is the profession's turn from theory to data as the starting point for economic analysis.