Power & Market
"What, sir, is the use of a militia? It is to prevent the establishment of a standing army, the bane of liberty. …Whenever Governments mean to invade the rights and liberties of the people, they always attempt to destroy the militia, in order to raise an army upon their ruins."
~ Elbridge Gerry, Fifth Vice President of the United States
All too often, government-produced defense is discussed as an ideal — a force that protects people and their rights. Seldom does reality enter the picture. Standing armies, after all, often do not only practice defense.
Once established, a government’s military, its bureaucrats and leaders, as well as laymen all face a different set of incentives. Those with a job related to the military have an incentive to keep their job. In most cases, they probably also desire to see the scope of their power expanded and their pay increased. The support for war then, is the ideal policy for achieving those goals. These incentives may not transform a champion of peace into a war-loving bureaucrat, but they can have effects on the margins. It’s much easier to rationalize a war if your job depends on it.
Changes on the Ground
More interestingly, the average citizen’s incentives change. To see what I mean, let’s take a look at the introduction of the permanent standing army in 19th century America.
Prior to the rise of the U.S. standing army, relations between natives and white settlers were relatively peaceful. It’s not that white settlers always felt warm feelings toward native Americans (or vice versa). Many did not. The reality of fighting one’s own battles, however, entailed significant costs. In an essay entitled " Exchange, Sovereignty, and Indian-Anglo Relations," Jennifer Roback remarks: "Europeans generally acknowledged that the Indians retained possessory rights to their lands. More important, the English recognized the advantage of being on friendly terms with the Indians. Trade with the Indians, especially the fur trade, was profitable. War was costly" “More than is generally appreciated, the contact (between Indians and whites) was even friendly, or at least peaceful.”
After the US maintained a permanent army, however, things changed. Most of the disincentives for war disappeared. The monetary costs that maintained the army were spread out over the entire populace and those who demanded the army’s services paid no additional price. Nor did they now need to risk their own life. Frontiersmen could now call upon subsidized troops to do their fighting for them. This had the effect of lowering the threshold for when settlers could justify resorting to violence against their Indian neighbors.
"In Raid or Trade? An Economic Model of Indian-White Relations," the authors accounted for a number of possible contributing factors, such as population change and newly settled land, and concluded the establishment of a standing army during the Mexican War had an independent effect of an increase of almost 12 battles a year. They estimated the buildup of the standing army before and during the Civil War caused an increase of around 25 battles a year.
As the quote at the beginning of this piece indicates, the Founding Fathers feared a standing army, and for good reason. While its ideal purpose is to create peace, we do not live in a world of ideals. The actual effects are to lower the costs of war to those who would have it, and to create a special-interest group of bureaucrats and military personnel who have a vested interest in advancing the war machine. As long as the army stands, peace is unlikely to be achieved or long-lasting.
If you take an hour drive down the I-65 corridor south from Nashville, Tennessee, you’ll find yourself in Columbia. My hometown isn’t quite as sleepy of a southern town as it used to be, much to my chagrin, but it’s still home nonetheless. The county seat of Maury, Columbia does have a handful of claims to fame to save itself from being a complete afterthought. If claiming a title means you get to keep it for all time, then I suppose it’s proper that Columbia still styles itself as the “Mule Capital of the World.” It’s been a century and change since the mule trade featured prominently in Columbia’s economy, but if a former president is still “Mr. President”, then I suppose Columbia is still “Mule Town”.
Don’t think for a second this isn’t an adequate cause for celebration. They’ll be putting on their 179th Annual Mule Day celebration, which is more appropriately titled Mule Days than Mule Day since it stretches nearly a week long, replete with fried foods, music, and even a parade down Main Street. While he wasn’t born there (Pineville, NC gets that honor), Columbia likes to pride itself as being the home of an American president. The James K Polk Home, the final residence of the nation’s 11th executive, sits a couple blocks down from the courthouse. It’s a museum now, among blocks of buildings that would make one think they had traveled back to the 19 th century were it not for a Dairy Queen.
Another notable Columbian is John Harlan Willis, whose name graces a Columbia bridge that crosses the Duck River. Nearly 40 of the 3,503 individuals who have been awarded the Congressional Medal of Honor are natives of Tennessee, and one of them is John Harlan Willis. Willis was born in Columbia in 1921. He graduated from my high school alma mater, Columbia Central, in 1940, only a short 64 years before myself. I remember walking every day by the display case, which contained his portrait. He was a baby-faced young man with a bit of a mischievous grin wearing his dark blue uniform. John wanted to become a doctor, as he was far more inclined to aid the ailing around him than to bring them to any harm. It was no surprise, then, that when the United States entered World War II, he found himself taking up the role of a Pharmacist’s Mate, First Class, in the U.S. Navy. Willis enlisted in 1940, receiving his naval recruit training at Naval Training Station in Norfolk, Virginia, before moving on to his hospital corpsman training at the Norfolk Naval Hospital in Portsmouth. By the onset of 1944, having spent most of the war learning the healing arts rather than combat, Willis was finally transferred to the 3 rd Battalion, 27th Marine Regiment, 5th Marine Division and sent to the Pacific theater. It was on Iwo Jima where, on the last day of February 1945, he would earn the Medal of Honor.
The official citation that accompanies Willis’s Medal of Honor reads like something straight from a Spielberg film. While in the process of aiding a number of his fallen comrades during the fierce fighting near the Japanese-held Hill 362, Willis was struck by shrapnel from a nearby grenade explosion and was ordered to abandon his charges back to the safety of an aid station. After receiving some bandaging for his wounds, but before being given leave to return to action, Willis made his way back to Hill 362 to resume treating marines who were suffering significant casualties. Then, while administering plasma to the wounded, Japanese forces began to litter his position with hand grenades. He picked up the first to land in close proximity and hurled it back at the foes atop the hill. He then grabbed another, and another, until he had returned eight grenades. It was the ninth grenade to come down upon him that he could not return in time; it exploded in his hand, killing him instantly. Inspired by the scene before them, Willis’s companions rallied from their entrenchment and, despite being outnumbered and charging uphill, they launched the attack that would ultimately repulse the enemy. The citation ends with the statement, “His exceptional fortitude and courage in the performance of duty reflect the highest credit upon Willis and the U.S. Naval Service. He gallantly gave his life for his country.”
While Willis was unquestionably selfless and heroic, I’m not so sure about that last assertion. Did John Harlan Willis really give his life for his country? Did he race back to the front, dodging fire and explosions, in order to please his country with his sacrifice, or rather that he could be the difference in his allies returning home safely? Perhaps we can find some answer in this photograph, which shows his widow Winfrey Willis holding her baby boy in one hand and taking her husband’s posthumous medal in the other from the Secretary of the Navy. Does Mrs. Willis look like a woman content to know her husband’s violent death somehow contributed to protecting America from an enemy it provoked in the first place, or rather a physically and emotionally exhausted single mother who would hand the medal right back if it meant little John could be hoisted in the air by his namesake? I tend to think if John were here today, he would tell you that, if indeed his life were destined to be extinguished on Iwo Jima that day, then he wasn’t giving his life for his country, but rather he was giving it to save his brothers in arms.
John Harlan Willis was laid to rest at Rose Hill Cemetery, just a couple blocks north of the courthouse. He sits today among Civil War soldiers, a handful of congressmen, a senator, and even a NASCAR driver. The hallowed burial ground, the honors, the memorial halls at medical centers, and even the destroyer USS John Willis are a bad trade for a devoted husband and father. He wanted to become a doctor. It might be a stretch to hope that he would have cured cancer had he survived the war, though he would’ve been valued all the same. A man who would brave bullets and shrapnel time and again, practically defenseless, in order to give a wounded man some plasma sounds like someone who would’ve made for an excellent neighbor. But we’ll never know what sort of family the Willis’s could’ve produced, the kind of physician he could’ve become, nor the sort of compassionate presence he could’ve brought to the community. And so the real tragedy of the tragic war hero is not in what they managed to accomplish, but rather in what they were never afforded the chance to.
Rep. Duncan Hunter (R-CA) found himself in hot water recently over comments he made in defense of Navy SEAL Edward Gallagher, who faces war crimes charges over his alleged conduct while serving in combat overseas. Gallagher is charged with stabbing a 15 year old ISIS member while in custody, of taking photos posing with the corpse of the teen, and with killing several civilians.
Defending Gallagher recently, Hunter put his own record up next to the SEAL to suggest that he’s an elected Congressman who has done worse things in battle than Gallagher.
That’s where Hunter’s defense earned him some perhaps unwanted attention. While participating in the first “Battle of Fallujah” in early 2007, by Hunter’s own account he and his fellow soldiers killed hundreds of innocent civilians, including women and children. They fired mortars into the city and killed at random.
In the sanitized world of US mainstream media reporting on US wars overseas, we do not hear about non-combatants being killed by Americans. How many times has there been any reporting on the birth defects that Iraqis continue to suffer in the aftermath of US attacks with horrific weapons like depleted uranium and white phosphorus?
Rep. Hunter described his philosophy when fighting in Iraq:
“You go in fast and hard, you kill people, you hit them in the face and then you get out…We’re going to hurt you and then we’re going to leave. And if you want to be nice to America, we’ll be nice to you. If you don’t want to be nice to us, we’re going to slap you again.”
This shows how much Duncan Hunter does not understand about war. When he speaks of hitting people in the face until they are nice to America, he doesn’t seem to realize that the people of Fallujah – and all of Iraq – never did a thing to the US to deserve that hit in the face. The war was launched on the basis of lies and cooked-up intelligence by many of the people who are serving in the current Administration.
And that brings us to the real war criminals. Rep. Duncan Hunter and his fellow soldiers may have killed hundreds of innocent civilians and even felt justified. Their superior officers, after all, established the rules of engagement. Above those superior officers, going up and beyond to the policymakers, the lie was sold to the American people to justify a war of choice against a country that could not have threatened us if it wanted to.
Vice President Dick Cheney knew what he was doing when he kept returning to the CIA headquarters, strong-arming analysts to make the intelligence fit the chosen policy. John Bolton and the other neocons knew what they were doing when they made claims about Iraq’s weapons of mass destruction they knew were false. The Pentagon’s Office of Special Plans played its role in selling the lie. So did the media.
Edward Gallagher will face trial and possibly jail for his actions. Rep. Duncan Hunter may even face punishment – though perhaps only at the ballot box – for his admitted crimes. But until those at the top who continue to lie and manipulate us into war for their own gain face justice, the real criminals will continue to go free and we will continue pursuing a suicidal neocon foreign policy.
The gold price shot up $50 in the last 30 days during a time of the year when the yellow metal typically lays down to begin its summer nap. At the same time, Bitcoin’s price has rose from its slumber. What’s up? Luke Gromen, founder of Forest for the Trees LLC , a macro/thematic research firm catering to institutions and individuals may have put his finger on it during his interview with Ed Harrison on Real Vision .
Gromen points out that something happened in the 4th quarter of last year and on March 20th of this year. Alarm bells have gone off at the Fed because for the first time in 70 years, government deficits matter. According to Gromen,
With Fed Funds went over interest on excess reserves, that was a sign that the United States government's deficits were getting so big and foreigners' interest in treasury bonds, because FX had yields, were so negative, though the interest from foreign private sector investors was so low, that we are crowding out our own banking system. And so, if the Fed does not inject a significant amount of dollar liquidity soon- be that via repo, be that via rate cuts, and I think you're going to be seeing QE probably in six to nine months at the latest.
From October through April , Uncle Sam’s outflow exceeded his inflow by $531 billion or 38% more than a year ago. Foreign central banks used to buy up US Treasuries like there is no tomorrow, but now, not so much. Late last year,
the hedging costs for foreign investors to buy US Treasuries went negative. In other words, for a Japanese or German private sector investor- and again, the US government's now critically reliant on foreign private sector investors to buy Treasuries, the yield FX hedged turn negative.
Last year the U.S. government issued $10 trillion worth of Treasuries, 70 percent of which have less than one-year maturities. This year it’ll be $11.5 trillion, again with 70 per cent maturing in less than 12 months.
The upshot of all this is
the Fed is losing control of [the] Fed Funds Rate at the short end because US deficits are growing as fast as they are. And because foreign official sector is not buying really at all on net. The foreign private sector is not buying enough, they are buying some unhedged but not nearly enough relative to the size of the deficits we're running.
The price of money is the Fed’s business and the gang at the Eccles Building has lost its grip according to Gromen, who believes, Powell has no choice but “to cede control over the quantity of money in order to control the price of money.”
A year ago, it was tighten, tighten, tighten, now three rate cuts are expected by the market by year-end. Gromen told Harrison that Trump’s tariffs matter some, but, it’s the deficits that really matter and are forcing the Fed’s hand.
And so, ultimately, what that suggests is that any rate cut you have because, again, the reason why all this is happening is US deficits are big and growing and structural. And they're crowding out the US private sector. And so, basically, the primary dealer of last resort, I think I saw someone say, or call it, the Fed is going to have to start bidding for these bonds again. So, I think it depends a lot on messaging on July- we were talking before, if they don't do what's expected, it's not going to be good for risk. But ultimately, they're going to have to unless they don't want to exist anymore.
We can be sure Chairman Powell will not want the Fed to vanish under his watch. He’ll be printing and bidding (for Treasuries). QE will return, along with a growing Fed balance sheet.
So what’s a person to do? Gromen sees more asset price inflation on the way and it will accelerate. In particular, he likes gold, both the barbaric version, and the electronic version, Bitcoin.
Listen to the Audio Mises Wire version of this article.
Fox News host Tucker Carlson took to the airwaves of this popular show last night to lambaste Austrian economics and libertarianism, which he views as twin pillars of a failed ideology that doesn't protect American workers and their interests.
The GOP, he argues, is in thrall to free-market corporate interests and esoteric economic theories from dusty textbooks. Republicans remain wedded to unbridled libertarian political philosophy, tax cuts, deregulation, and unilateral free trade, all of which enrich elites but hurt average people. Meanwhile, presidential aspirants like Elizabeth Warren and Bernie Sanders offer the American electorate real-world solutions to economic insecurity, jobs, and healthcare.
It's a compelling story, but untrue. Does Carlson honestly think Republican members of Congress are overly theoretical and ideological? And here we thought they were a bunch of unprincipled and poorly-read hacks!1
Does he honestly think the budget-busting GOP of recent political memory, from Bush II (Iraq War, Medicare Part D, Department of Homeland Security, Patriot Act), John McCain, Mitt Romney are ideological libertarians? Why did Ron Paul and Rand Paul fare poorly among Republican primary voters, if in fact free-market ideology and its donor class dominate the party? And hasn't the party been overtaken by Trumpist protectionists?
Of course we're pleased when Right populists recognize the influence of the Austrian school, just as we're pleased when Left-liberals at the New Republic convince themselves that Misesean "neoliberalism" has taken over the world. We note that Mises and Rothbard continue to receive criticism decades after their respective deaths, a testament to their deep (and apparently nefarious!) influence and an honor given to few economists.
Carlson, a onetime Cato Institute staffer and Weekly Standard writer, understands both Republican politics and the DC world of think tanks and punditry. When he references the Austrian school or libertarianism, it's shorthand for "Koch money and influence" rather than any real ideology. It's his shorthand for the "self-interests of rich guys," interests given an intellectual veneer by academics and writers who are happy to accept billionaire crumbs in exchange for cozy non-profit sinecures. "Conservatism, Inc." (or "Libertarianism, Inc.") has become an self-serving industry unto itself, sclerotic and ripe for criticism.
There is truth to this. But it's not an ideological truth. Tucker Carlson knows better. He knows full well how tariffs make society overall worse off, how markets make poor Americans far better off than the poor in many countries, why government medicine doesn't work, and how minimum wage laws hurt the least-skilled workers. His argument is about priorities and strategy (and TV ratings), not ideology. And it accepts a fundamental tenet of the Left: self-interest for me is noble and warranted, self-interest for others (especially the rich) is suspicious if not sinister.
In other words, Carlson presents a fundamentally zero-sum perspective, which is to say a fundamentally political perspective.
That said, his populism—particularly his antiwar stance—should not be dismissed. Populism per se is not an ideology, but rather a strategy. It can be imbued with any political philosophy, and thus can be equally dangerous or beneficial. At its core populism questions not only the competence of elites, but also their worthiness. It asks whether elite interests comport with those of average people, and in most cases correctly concludes that political elites have interests at odds with those people.
When elites are state-connected or state-protected, i.e., when they maintain or even derive their wealth and influence through their relationship with the state, libertarians have every obligation to object. Elites in the West—from politicians and bureaucrats to central bankers and media figures to defense contractors and patent-coddled pharmaceutical execs—richly deserve our ire. They screwed things up, and ought to be held accountable.
Tucker Carlson is right about that.
Read more: Rothbard on Libertarian Populism
- 1. As I write this, I'm privileged to sit in a conference room at the epicenter of Austrian economics. A group of graduate students from around the world is in residence at the Mises Institute this summer, and this week they're discussing (chapter by chapter) Rothbard's Man, Economy, and State.Apparently the GOP forgot to send its congressional delegation to attend.
Governments have too much power over people. But most of us can’t truly grasp how deep this power goes until our lives are completely changed by a new policy.
Three years after President Obama lessened travel restraints to Cuba, the Trump administration imposed new restrictions for American tourists. This new policy impacts private and corporate planes and boats, cruise ship tours, and other group trips to the island nation.
In a statement to the press, Treasury Secretary Steven Mnuchin said that the travel ban was reinstated because of the “destabilizing role in the Western Hemisphere, providing a communist foothold in the region and propping up U.S. adversaries in places like Venezuela and Nicaragua by fomenting instability, undermining the rule of law, and suppressing democratic processes.”
With the new restrictions, Mnuchin said, the administration hopes “to keep U.S. dollars out of the hands of Cuban military, intelligence, and security services.”
On Twitter, Cuba’s Minister of Foreign Affairs Bruno Eduardo Rodríguez Parrilla said the U.S. wants to “[suffocate] the economy & [harm] the living standards of Cubans in order to forcefully obtain political concessions.”
Bruno Eduardo Rodríguez Parrilla, Cuba’s Minister of Foreign Affairs, strongly criticized the new travel sanctions.
“I strongly reject new sanctions announced by #US vs. #Cuba which further restrict #US citizens’ travels to Cuba, aimed at suffocating the economy & harming the living standards of Cubans in order to forcefully obtain political concessions,” Parrilla wrote on Twitter. “Once again they will fail.”
Regardless of how he feels, the conflict between the U.S. government and the Cuban regime shouldn’t impact people who have nothing to do with it. Whether officials of both countries recognize this or not, they have no legitimate authority over people’s lives.
Government Shouldn’t Dictate Travel Policy
This new attack on Cuba, Mnuchin himself admitted in his statement, is due to Cuba’s close association with Venezuela. But because these restrictions impact Cuban citizens directly, as many are only able to make a living thanks to U.S. tourists , Trump’s move might as well be seen as an act of war.
Whether you support the oppressive regimes in both Venezuela and Cuba or not, the nature of the current administration’s policy can’t be ignored, as it puts America, once again, in the role of the world’s police. And as we’ve seen in the past, to play this role means to put innocent people’s lives in jeopardy.
While to some, it might seem OK to punish the entire country for its corrupt government, the reality is that Cubans aren’t in love with communism . Quite the contrary, many agree that their government doesn’t represent them. But when the United States imposes sanctions or travel bans, it ends up fueling Cuban state propaganda while restricting the individual’s right to do what he or she pleases with their own money. In the end, those who hurt the most are the Cuban people, many whose livelihood depend on exchange with foreigners.
Like no other international mass shooting in recent memory, the Christchurch Mosque massacre in New Zealand is having a resounding impact on gun control discussions in the United States.
In short order, politicians from Bernie Sanders to Alexandria Ocasio-Cortez praised New Zealand for its immediate decision to implement gun control. At the same time, they reiterated that the U.S. follow in New Zealand’s footsteps by passing so-called “assault weapons” bans.
In the American case, there were already several assault weapons ban bills filed in both the U.S. House and Senate before the Christchurch massacre. Although Republican control of the Senate will likely prevent the passage of these bills, these recent filings and the new outrage from the New Zealand tragedy have re-ignited discussions about gun control.
The Origins of the Assault Weapons Ban
AWBs have been a fetish of sorts for gun control proponents during the past three decades. California was one of the first states to pass this policy in 1989 with the Roberti-Roos Act, which banned the ownership and transfer of various brands of assault weapons. The weapons that fell under this ban consisted of rifles and even some pistols and shotguns. This became the inspiration for other assault weapons bans across the nation and eventually led to Bill Clinton’s signing of Federal Assault Weapons Bans of 1994 .
In 2004, the 1994 AWB expired under President George W. Bush’s administration. Many advocates for the AWB warned that expiration would lead to a sudden surge in crime. Not only did murder rates drop from 2003 to 2004, but they have continued falling into the present. Per capita, gun ownership increased by 56 percent from 1993 to 2013, while gun violence plummeted by 49 percent during the same period.
During the past 20 years, lax gun policies like Constitutional Carry, the ability to carry a firearm without a permit, have also become politically relevant. In 2019 alone, states like Kentucky , Oklahoma , and South Dakota embraced Constitutional Carry, which now brings the number of states with this policy to 16. Gun liberalization considered, crimes rates have continued to drop. In 2014, for example, homicide rates reached a 51-year low .
The Obsession over Assault Weapons: Much Ado About Nothing?
Indeed, “assault weapon” is a politically loaded term with no standard definition. They are often confused with assault rifles, weapons with single-shot, burst fire, and fully automatic fire settings, which are employed by militaries around the world. These weapons are not readily available to the civilian populace in America due to stringent regulations from the 1934 National Firearms Act (NFA)and the Hughes Amendment of the 1986 Firearm Owners Protection Act (FOPA). Firearms like the AR-15, a whipping boy for the gun control crowd, only has semi-automatic settings.
Despite these facts, the media have run with the assault weapon canard. Interestingly, research shows that weapons that fall under the arbitrary assault weapon label account for a small percentage of crime. According to Gary Kleck in Targeting Guns, assault weapons were only used in 1.4 percent of gun crimes before any national or state assault weapons bans were implemented in the 1990s. In 2001, the Bureau of Justice found that 8 percent of criminals used assault weapons in firearms-related crimes.
In 2017 alone, only 403 people were killed by all types of rifles. To put this in perspective, this was a year when there were nearly 15,000 total murders, which includes both firearms and non-firearms related deaths. From 2007 to 2017, the much-maligned AR-15 accounted for only 173 deaths in mass shootings.
Assault Weapons Bans Enhance the On-Going Trend of State Control
Crime statistics aside, there is another key reason to be worried about AWBs. These new laws involve conceding more government control over human behavior.
As Ryan McMaken notes , the past century has been one of federal consolidation of power, in which numerous Anglo-Saxon traditions have been subverted by the managerial state. This is most apparent when dealing with the issue of militias. The tradition of a decentralized militia goes back to the libertarian Levellers of 17th century England. This decentralized militia practice did not stay confined to the British Isles as it soon became a part of American colonial culture.
In the early days of the American Republic, Founders like Patrick Henry and George Mason continued that tradition by stressing the importance of the militia instead of centralized standing armies. With the codification of the Second Amendment, both the militia and private firearms ownership aspects became bedrocks of American civic culture up until the early 20th century.
A key component of militia units is their access to military-grade weaponry. However, the militia’s autonomy from the federal government and civilian access to military weapons has been significantly undermined during the past century. David Yassky explains how the Dick Act (the Militia Act) of 1903 and subsequent acts have put the National Guard increasingly under the federal government’s thumb. Yassky points out that “anyone enlisting in a National Guard unit is automatically also enlisted into a "reserve" unit of the U.S. Army (or Air Force), the federal government may use National Guard units for a variety of purposes, and the federal government appoints the commanding officers for these units.”
It also doesn’t help that the passage of the aforementioned 1934 NFA and Hughes Amendment of the 1986 FOPA make it prohibitively expensive for everyday gun owners to acquire military weapons such as machine guns. In the case of the 1986 FOPA, civilians were banned from purchasing machine guns manufactured after the date that this law was enacted.
Trust As The Mechanism For A Better Entrepreneurial Business And A Better World: 5 Tips For Startups
Every day, we as consumers, citizens, family members, and friends experience hundreds of examples of how our trust undergirds the world we live in, and how fragile the world can be when trust is violated or broken. We’ve all experienced relationships that have faltered and beliefs that have been challenged as the result of a moment that altered our trust in a person, institution, or even corporation. It’s something so basic that the average person likely spends little to no conscious thought about trust, and how it effects the efficiency of the world around them.
A loss of focus on the importance of trust has led generations and entire nations to be seduced by the promise of regulation as a mechanism for protection against the violation of trust. The reality is that regulations and regulators replace the trust economy altogether and redirect the responsibility to act ethically and honestly away from the economic actors themselves and place it on the regulations and regulators. This ultimately leads to the outcry for further regulations and more complex legislation to take hold of the “evil corporations” and “greedy investors”. A clear understanding of the way in which the trust economy works to self-regulate shows how unnecessary and frequently harmful the regulatory system can be.
In my episode of Economics for Entrepreneurs with Hunter Hastings we spend a good deal of time discussing the beef industry. Clearly, if a food manufacturer produced adulterated product and customers became sick, we can imagine, with the trust economy as the master, how long that business would be able to continue selling product. The consumer’s trust that the product will be clean and safe would be destroyed. Conversely, as we look at these industries under regulation, we find that the consumer is confused about who to blame for any safety issues and often continues to buy from the offending party while continuing to look to government for the solution. As a result, we end up with a complex web of rules and institutions that, in the end, fail to close the loopholes and allow businesses to increase their concentration of power, leading to less innovation and less competition.
Consider the current case and controversy surrounding Facebook and its curating of news and information. Facebook seems to have violated the trust of a certain segment of their base by failing to convince them that their curation of news and treatment of private data is safe and unbiased. The natural reaction in the modern era is to look towards regulation as the answer rather than simply understanding the limited power that a private company holds over consumers in a non-regulated sector. The reality is that this violation of trust opens the door for a bevy of entrepreneurs to try their hand at supplanting Facebook by providing a product that focuses on transparency and innovates in regard to privacy and safety. Regulating Facebook, conversely, would only create a bureaucratic monster that likely would increase the barriers to entry for entrepreneurs and place an ever-increasing compliance cost on the backs of taxpayers, all while securing monopoly type powers for Facebook itself. For further evidence, Ryan McMacken makes a great case for why regulating Facebook would be a disaster in his recent article 3 Reasons Why Facebook's Zuckerberg Wants More Government Regulation .
The lesson to learn for entrepreneurs is that trust decreases the complexity of a transaction, increases efficiency, and has the potential to decrease cost. A contract between individuals who have successfully completed hundreds of transactions without significant disputes or quality claims is likely a shorter document (perhaps even a boilerplate agreement) with less time spent on legal fees and more left unsaid and uncontrolled by the contract. Conversely, a counterpart who has a history of issues, default, or simply creating headaches may find that the document they receive has been pored over by legal teams and leaves absolutely nothing to chance. Additionally, the less desirable customers are likely to find that their counterpart has priced, to a certain degree, the risk associated with accepting this company as a customer and may decline to extend credit or, at a minimum, may limit terms. Additionally, an entrepreneur will find that the development of trust can yield easier access to new markets, lower barriers to entry, and eventually lead to higher profit margin as a trusted product is valued higher on average than a product which may yield higher rates of defect.
So how can we, as entrepreneurs, earn trust in a startup environment where there have not been a multitude of completed transactions?
1) Leverage past relationships and previously developed reputations.
For those of us who have forged longstanding reputations in previous endeavors, continuing to operate in a circle where this reputation is known, and past relationships have already been developed means a leg up against the “from scratch” start-up taking a leap into the unknown. A properly placed endorsement from another trustworthy individual or entity can ensure that others unfamiliar with your past will be assured of your integrity and continued strength.
2) Be authentic.
Everything has a cost. We can try to show potential customers that we value their needs, but if the sales pitch at any point fails to meet with reality then trust is broken, and the short-term gain becomes moot. Under-promising and over-delivering may mean a longer road to those first sales, but can generate a great amount of trust currency to be leveraged later.
Ultimately trust rests in action. Vigilantly ensuring that the product is delivered as promised and avoiding any complications ensures that your customer has a positive experience and learns that you are as good as your word. Solid customer service for a start up business can be as important as the product itself (which can be difficult given limited resources and lean organizations).
4) Small concessions can build great trust.
One of the advantages of being a start-up is that your organization is not large and institutionalized. You are not forced, due to the problems of organizational size, to implement hard and fast rules. Rather you can be more human in your interactions. Use discretion to affirm the authenticity of your willingness to work through even the minor problems and your customer will certainly gain trust in your organization.
5) Trust works both ways.
Nascent businesses must be more careful than well established companies in trusting their counterparts. The start up nature means that problems normally routine for a better-established firm may bring about the end of a startup. Therefore, a startup may wish to forgo its first sale in favor of finding a customer that will deal more honestly and ensure that a solid relationship can be established.
[Editors note: After this article was written, Theresa May officially announced she is leaving the position of Prime Minister on June 7th.]
Brexit has been a long, drawn-out saga. But finally, Theresa May’s indecision appears to be coming to an end. She has finally been cornered in a tragic opera with more twists and turns than Wagner’s Ring Cycle. May’s Götterdämmerung is reaching its conclusion. Brünnhilde is riding Grane, her trusty steed, into immolation on the funeral pyre of her heavily-amended withdrawal agreement.
Mrs May’s initial error was to seek consensus between Remainers and Brexiteers. In the words of one of her sacked advisers, Nick Timothy, she viewed Brexit as a damage-limitation exercise. Her mission statement evolved from her Lancaster House speech, when she declared she would deliver Brexit in terms which were clear, complying with the referendum and applauded by ardent Brexiteers. It became a fatally flawed compromise, which has failed to be ratified by MPs on three occasions so far, and a proposed fourth in the next week or so is likely to suffer the same fate.
Her problems started in earnest when she over-ruled her first Brexit secretary, David Davis. Unknown to her Brexit ministers, with her own civil service advisors she began negotiating behind her Brexit secretary’s back. Davis was informed of May’s Chequers proposal only a few days before that fateful Checkers meeting, following which Davis and Boris Johnson (Foreign Secretary) resigned from the Cabinet, while five other ministers and Parliamentary Private Secretaries also resigned.
If ever there was evidence that in politics you should keep your enemies close and your friends closer still, this was it. It has allowed those that have resigned to expose May’s duplicity to their fellow MPs and to organise the opposition to May’s Chequers proposal and the subsequent Withdrawal Agreement she cooked up with the EU.
Mrs May was always a Remainer, and her presence as Prime Minister has encouraged leading Europhiles to overturn the Brexit referendum. That is why she sees it as a damage limitation exercise: produce something that can be said to be Brexit, but still leaves the UK tied to Brussels. It is Hotel California, with Britain only leaving if both sides agree to it, or alternatively, Northern Ireland remains in the EU’s customs union. That cannot happen, not least because the DUP would end its vital support for May’s minority government.
Putting the Northern Ireland issue to one side, in order to get the agreement of the other EU nations for a full and final exit, the UK relies on “The duty of good faith which prohibits the deliberate exploitation of the implementation period to damage British interests” (Barclay’s emphasis). This was written in a letter by Steve Barclay, the current Brexit Secretary, to John Redwood, a senior Conservative backbench MP, in response to his concerns over the Withdrawal Agreement.
Good faith in politics? Barclay must be joking. Spain has a political interest in securing Gibraltar: won’t a future Spanish politician not be tempted to only agree to opening the door to Hotel California if Gibraltar is signed over? French fisherman enjoy free access to British fishing grounds. What French politician has the resolve to stand up to striking fisherman on a good-faith commitment? We haven’t seen one yet.
In short, May’s attempt to limit Brexit damage is a stitch-up, pleasing neither side of the House.
Labour’s Role in All This
In desperation, Mrs May has turned to Jeremy Corbyn’s Labour Party to gain sufficient support to push her Withdrawal Agreement through the House against the wishes of her own MPs. Corbyn is a Marxist, as is his Shadow Chancellor, John McDonnell. Both of them have promoted far-left activists, who now have a high degree of control over both party policy and the selection of Labour MPs, meaning that moderates are being side-lined and expunged.
This creates Labour’s own crisis, with Marxist activists alienating moderate Labour voters in the constituencies. Furthermore, the Parliamentary Labour Party has its own split between Remainers and Brexiteers. The whole Brexit issue is a hot potato with which the Labour leadership would rather not be involved. It was with this in mind the Labour leadership held talks with Mrs May’s government, at her invitation, to try to find common ground.
Labours tactics were simple, only an increasingly desperate Prime Minister seemed unable to see them. Labour took and kept the moral high ground, appearing reasonable by accepting the invitation to talks. They ensured they would go nowhere (not difficult, given Mrs May’s stubbornness), then withdraw blaming her for the breakdown. Their hope is to force a general election following a No Confidence Motion only after Brexit has been resolved, capitalising on Mrs May’s disastrous handling of the Brexit issue. And if Mrs May brings her proposed withdrawal agreement to the House for a fourth time, they almost certainly won’t support it, again blaming Mrs May for her “failure to listen”.
The Labour leadership will be observing with interest the battle to succeed her, and it will be clear to them that either No Deal or a compromise in that direction will be the result. This is unlikely to worry them on two counts. Firstly, Labour will not want to alienate voters in their northern constituencies any further by compromising on Mrs May’s deal or anything close to it. And secondly, the leadership, being committed Marxists, will probably take the view that a “right-wing” Prime Minister will improve their own prospects in a general election.
It all points to a continuing strategy of not supporting Mrs May, avoiding any deal with the Conservatives, and hoping the Conservatives will elect a leader that will destroy the Conservatives’ electoral prospects.
Mrs May’s Likely Replacement
At the time of writing, it appears that Mrs May will fail disastrously if she puts her amended withdrawal agreement to a Commons vote for a fourth time. She has tried to appeal to the Remainers with a fourth vote by offering a possible second referendum if MPs back her bill. She has now broken every red line she previously set out. She may not even get the chance for it to be voted.
In the coming days, her position will surely become untenable, though we have all said that before. But this time, she will have exhausted every possibility and have nowhere else to go. And if the Conservative vote collapses in today’s European elections, the fence-sitters in Parliament will be galvanised into getting rid of her.
In the last few days, leadership contenders have been lining up their bids for the premiership. Those jostling for position are talking of everything but Brexit. The Remainers, such as Philip Hammond (the Chancellor) do not appear to be in the race and have become so unpopular outside Parliament that they wouldn’t get a mandate from the constituencies anyway. The next leader is very likely to be a staunch Brexiteer.
It would bore an international audience to list and analyse the runners, other than to concentrate on the clear favourite, Boris Johnson, who currently shows as 7/4-on. His nearest rival, Dominic Raab is 9/2-against. The news on Boris is for him both good and tricky. The good is that he is clearly the favourite with the constituency members, and if he can be one of the two names put forward, he should be home and dry. The tricky bit is Remainer MPs and fence-sitters in the parliamentary party, who claim to be one-nation Tories, would rather not support Boris.
He is regarded as right-wing, when in fact he favours freer markets, less regulation, and free trade. He is a classic Tory. It is the party’s middle ground that has become socialistic. In an op-ed in the Daily Telegraph he wrote the following:
“What we cannot now know – as the great French economist Bastiat observed in the 19th century – is the unseen opportunity cost of the way the UK economic structure has evolved to fit the EU over the last four and a half decades, and the productive ways in which it might now evolve.”
The reference to Frédéric Bastiat is important. He is referring to Bastiat’s parable of the broken window, which points out that the state’s intervention (the boy who broke the window) denies the more productive use of the baker’s money to his desired ends. The fact that Johnson knows the parable and understands the message is good evidence of his libertarian credentials.
That being the case, it is the socialistic element of the Conservative parliamentary party, masquerading as one-nation Tories, that he has to overcome. Reportedly, he has been having one-to-one meetings with his fellow MPs to do just that. Sometime ago, there was a well-founded belief that if Johnson became leader of the Conservative Party at least five MPs would resign the whip. Since then, Change UK, a dustbin of disillusioned Remainers has been formed with eleven MPs, three of which were Conservatives. It has been a complete failure and a sharp lesson to other would-be jumpers, so there are likely to be no more defections on a Johnson leadership.
Johnson has also been taking the advice of Lynton Crosby, probably the most successful political strategist today. It was Crosby who advised Scott Morrison in last weekend’s Australian election, when the expected Labour opposition victory was successfully overturned. He also advised Johnson in his successful elections as Mayor of London in 2008 and 2012.
This is interesting, because Johnson appears to be working to a carefully constructed plan. He avoids press comment over Brexit and writes about anything else in his Monday column at the Daily Telegraph. His contributions in Parliament have been brief, the few on Brexit generally confined to democracy rather than trade. He has positioned himself to rescue the party from electoral destruction if called upon, rather than appear to be an overtly ambitious politician, unlike all the other contenders. It is quite Churchillian, in the sense there is a parallel with Churchill’s election by his peers to lead the nation in its darkest hour. He even wrote about it in a recent bestseller, The Churchill Factor1,and understands intimately what it took for Churchill to gain the support of the House.
It is therefore hardly surprising Johnson is the favourite to succeed Mrs May. His appreciation of free markets means he is not frightened by trading with the EU on WTO terms. Furthermore, President Trump admires him, and would be likely to fast-track a US trade deal with the UK. However, Johnson is likely to pursue a deal on radically different terms on a take-it-or-leave-it basis with no further extensions to Exit Day.
As soon as the 31 October deadline has passed, Remainers will no longer have a cause. They have yet to appreciate the fact, and they may vote for him in the hope that after restoring the party’s fortunes, they can get rid of him and mend relations with the EU. But the Brexit debate would effectively end after Exit Day and its divisiveness with it. Farage’s Brexit party will wither on the vine, its purpose of restoring democratic accountability to Parliament and delivering Brexit being restored.
Johnson would then have the task of rebuilding the party for the next general election, set for 5 May 2022.
In the coming days, having seen Mrs May’s last roll of the dice, all these factors will be uppermost in the minds of both backbenchers and of government ministers in their private capacity. If there is one thing that is certain, the Conservative Party is a survivor. If Boris Johnson is the best option, MPs will swallow their prejudices and elect him.
Excerpted from Brexit – Theresa May’s Final Act
Published by Hodder, 2015.