McCaffrey in Harvard Business Review

McCaffrey in Harvard Business Review

09/03/2019Mises Institute

The Macro Problem of Microtransactions: The Self-regulatory Challenges of Video Game Loot Boxes by Matthew McCaffrey has been published as a case study for Harvard Business Review.

The video game industry has ignited a global controversy surrounding microtransactions in gaming, especially the use of loot boxes: randomized rewards with potential real-world value. Consumers and legislators are calling for the regulation of these revenue models on the grounds that they are unfair, predatory, or could be considered gambling. This article examines the controversy from a management perspective. First, I introduce current regulatory responses to the controversy and what they mean for business practices. Then, I explain ongoing industry-level and firm-level attempts to self-regulate as a way to placate consumers and governments. These tactics highlight a wide range of broader strategies that game developers and other stakeholders can pursue in order to improve customer relations and, more publicly, signal their commitment to self-regulation and avoiding consumer harm. These practices can be applied more broadly to firms that offer controversial products or services that do not yet fit within current regulatory frameworks.

Available for purchase here.

For more from McCaffrey on the topic on the Mises Wire:

Microtransactions and Loot Boxes: Can the Video Game Industry Regulate Itself? 

The Looming Threat of Video Game Regulation

 

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American Politics Has Too Many "Party Animals"

10/03/2019Gary Galles

As hard as it is to believe after the 2016 election, attempts to bend, fold, spindle and mutilate public opinion have become even more intense and partisan since. Attacks, accusations, misrepresentations, leaks, innuendo, “gotcha” questions, ad hominem attacks and more follow one another on an accelerating merry-go-round of political abuse.

While many decry this overheated partisanship, few have analyzed the issue better than James Fenimore Cooper, in The American Democrat, an 1838 primer on Americans’ political responsibilities, written in reaction to the political excesses of his era.

America’s first great writer recognized that “in a democracy, the delusion that would elsewhere be poured into the ears of the prince is poured into those of the people.” He also saw that citizens needed the vigilance to see through those delusions, to maintain a democracy that did not eviscerate liberty: “The elector who gives his vote, on any grounds, party or personal, to an unworthy candidate, violates a sacred public duty, and is unfit to be a freeman.” As we wade through the mountain of muck that is accumulating in anticipation of the 2020 election, Cooper’s analysis appears very prescient:

  • In a democracy, as a matter of course, every effort is made to seize upon and create public opinion, which is, substantially, securing power.
  • Failing of the means of obtaining power more honestly, the fraudulent and ambitious find a motive to mislead, and even to corrupt the common sentiment, to attain their ends. This is the greatest and most pervading danger of all large democracies...We see the effects of this baneful influence in the openness and audacity with which men avow improper motives and improper acts, trusting to find support in a popular feeling.
  • The people are peculiarly exposed to become the dupes of demagogues and political schemers, most of the crimes of democracies arising from the faults and designs of men of this character.
  • Party misleads the public mind.
  • Opinion can be so perverted as to cause the false to seem to be true; the enemy, a friend, and the friend, an enemy; the best interests of a nation to appear insignificant, and trifles of moment; in a word, the right the wrong and the wrong the right.
  • Party, by feeding the passions and exciting personal interests, overshadows truth, justice, patriotism and every other public virtue…by putting unworthy motives in the place of reason.
  • Party feeling...induces men to adopt in gross, the prejudices, notions and judgments of the particular faction to which they belong, often without examination, and generally without candor.
  • Thus it is we see half the nation extolling those that the other half condemns, and condemning those that the other half extols. Both cannot be right, and as passions, interests and prejudices are enlisted on such occasions, it would be nearer the truth to say both are wrong.
  • The discipline and organization of party are…putting managers in the place of the people.
  • When party rules, the people do not rule, but merely such a portion of the people as can manage to get control of party.
  • Party pledges the representative...right or wrong, when the institutions intend that he shall be pledged only to justice, expediency and the right, under the restrictions of the constitution.
  • No freeman who really loves liberty...will ever become a mere party man...it will be his earnest endeavor to hold himself a free agent, and most of all keep his mind untrammeled by the prejudices, frauds, and tyranny of factions.

Given how many Americans are now acting as if they were mere “party men,” Cooper’s warnings against putting party before serious thought were never more necessary. Unfortunately, those who most need to heed it show little inclination of doing so.

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A Defense of the UKSC Decision on Parliament Prorogation

10/02/2019Maurus Adam

On September 24, the Supreme Court of the United Kingdom (UKSC) has declared the Prime Minister Johnson’s move to prorogued Parliament from the September 9 or 12 to October 14 was unlawful and that Parliament was not prorogued (2019 UKSC 41). An article on the Mises Wire (Ryan McMaken on 09/24/2019) has commented on this ruling, describing it as a ‘move of the UK’s political class designed to postpone Brexit yet again’. The article is asserts that ‘democracy is only allowed when the regime likes the outcome’.

There are certainly some valid arguments in this article. However, it is my position that the merits of the Court’s decision prevail.

The Brexit Referendum

The previous article has stated that, while the UKSC has not ruled on Brexit per se, in context it is an attempt to postpone Brexit. This may be true. The court proceedings have been initiated by an activist with a pro-European attitude, although her arguments have consistently been based on holding the executive accountable to the Parliament (see also 2017 UKSC 5). But the very recent context of power struggles within both the British Parliament and the British Conservative Party to which, I assume, Mr. McMaken refers, conceals the origin of these struggles. The question asked in the Brexit referendum was:

"Should the United Kingdom remain a member of the European Union or leave the European Union?"

51.89 % voted Leave, 48.11% voted remain. There are no further implications on the nature of the future relation with the EU or the withdrawal process. The Members of Parliament (MPs) have since then been split up into actual Remainers, MPs in favor of leaving with an agreement, MPs in favor of leaving without agreement (the so-called No Deal) and some positions in between.

Parliament has enacted the European Union (Withdrawal) Act 2018 defining an exit day, although with the possibility to extend, and requiring Parliament to approve any withdrawal agreement. As the agreement reached by then PM Theresa May was rejected, the exit day was postponed. The current position is that the UK will leave on October 31 with or without agreement, although since very recently, the European Union (Withdrawal) (No 2) Act 2019 requires the PM to seek a further extension if the Parliament does not consent to either an agreement or to no agreement.

While the political situation is therefore complicated, one thing remains clear: Parliament must have a say in the Brexit procedures. The government can negotiate with the EU, but it must be held accountable to the people’s representatives. It has no unlimited mandate.

The Court’s Ruling on the Prorogation

Prorogation ends a parliamentary session. During prorogation, the government can still exercise its powers, but Parliament may not meet, debate, pass any bills, debate Government policies, or ask questions to Ministers (2019 UKSC 41, §2). As such, prorogation prevents ministerial accountability to Parliament during the period of prorogation (2019 UKSC 41, §33).

Prorogation cannot be compared to a recess, which is voted upon in the House. Prorogation is a prerogative power. The Crown, advised by the Government, declares it. The Crown is obliged to accept the PM’s advice, which places constitutional responsibility on the PM as the only person with the de facto power to prorogue Parliament (2019 UKSC 41, §30).

While prorogation is a normal procedure, it is obvious that there must be a legal limit to prevent a completely unaccountable government. The UKSC has set the legal limit to the point when prorogation frustrates Parliament’s legislative and supervisory functions (2019 UKSC 41, §51).

The UKSC decided that the PM’s move to prorogue for around five weeks crossed this limit. The summer recess ended on September 3. Usually, Parliament would go into recess for around three weeks between September and October to allow for the party conferences. Then, the next session would have started with the Queen’s Speech which is prepared during prorogation. Normally, this takes six to seven days (2019 UKSC 41, §59). However, right now is not business as usual. The exit day and the preparations leading up to it are crucial for the future of the country, and, as outlined, there are multiple positions clashing. In fact, the majority of the House is opposed to the No Deal scenario (2019 UKSC 41, §53). Parliament could have decided to skip recess. Even if they agree to go into conference recess, they will retain their supervisory function. A prorogation of five weeks is unprecedented and creates a long time period just before the exit day where the government cannot be held accountable by Parliament. Above that, the Court found that the government did not provide reasonable justification for this unusually long time period. The government gave the impression that recess and prorogation are ‘much the same’ (2019 UKSC 41, §60). The motives of the PM did not matter to the Court. The length of the prorogation was not justified and frustrated the legislative and supervisory functions of Parliament.

The Merits of this Ruling

In his column, Mr. McMaken has brought several arguments relating to the politically charged situation in the UK. He criticized Parliament for preventing new elections, suggesting that they follow a party-political agenda and fear that Boris Johnson would win a majority in the next elections. He also asserted that only votes that help the pro-European position are allowed. Both statements might be true, and he has presented some cases to support them. But I suggest here that we should not let the noise around partisan power struggles conceal the facts. The PM has tried to create an unprecedented time where the government is not held accountable by Parliament. This is quite a drastic step, especially given the fact that the UK government is elected by Parliament. The government is only in office because it has the Parliament’s support. And we should also consider another fact: the Brexit referendum has only expressed the people’s will to leave the EU. There are still competing positions on the withdrawal agreement and procedure, even within the same party. It is the task of the Parliament to take those various interests into account.

Finally, I would like to defend the Court’s decision in view of one last statement which Mr. McMaken made: that democracy is only tolerated if it leads to the outcome preferred by the ruling class. This problem has been known before. J.S. Mill wrote that ‘the power of the people over themselves’ is often misinterpreted:

"The 'people' who exercise the power are not always the same people with those over whom it is exercised; and the "self-government" spoken of is not the government of each by himself, but of each by all the rest." (J.S. Mill, On Liberty, Ch. 1).

The majority might therefore try to oppress a minority to pursue their own interest. Mill already noted that the majority are not necessarily the most numerous people supporting a position, but it could also be those who made themselves accepted as majority. He therefore concludes that

"The limitation, therefore, of the power of government over individuals, loses none of its importance when the holders of power are regularly accountable to the community, that is, to the strongest party therein." (J.S. Mill, On Liberty, Ch. 1).

The "ruling class," or the majority, might prefer certain outcomes. But to prevent a tyranny of the ruling class, the government needs to be limited in its power. With its decision, the UKSC has prevented the government from creating an unusually long period at a crucial time where it would not have been accountable to all the People’s representative. The court procedures might have been initiated for purely partisan motives. The decision might be in favor of what is perceived a pro-European class. But it has prevented that a small group of people enforces whatever agreement they reach on all citizens of the UK.

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Impeachment… or CIA Coup?

10/01/2019Ron Paul

You don’t need to be a supporter of President Trump to be concerned about the efforts to remove him from office. Last week House Speaker Nancy Pelosi announced impeachment proceedings against the President over a phone call made to the President of Ukraine. According to the White House record of the call, the President asked his Ukrainian counterpart to look into whether there is any evidence of Ukrainian meddling in the 2016 election and then mentioned that a lot of people were talking about how former US Vice President Joe Biden stopped the prosecution of his son who was under investigation for corruption in Ukraine.

Democrats, who spent more than two years convinced that “Russiagate” would enable them to remove Trump from office only to have their hopes dashed by the Mueller Report, now believe they have their smoking gun in this phone call.

It this about politics? Yes. But there may be more to it than that.

It may appear that the Democratic Party, furious over Hillary Clinton’s 2016 loss, is the driving force behind this ongoing attempt to remove Donald Trump from office, but at every turn we see the fingerprints of the CIA and its allies in the US deep state.

In August 2016, a former acting director of the CIA, Mike Morell, wrote an extraordinary article in the New York Times accusing Donald Trump of being an “agent of the Russian Federation.” Morell was clearly using his intelligence career as a way of bolstering his claim that Trump was a Russian spy – after all, the CIA should know such a thing! But the claim was a lie.

Former CIA director John Brennan accused President Trump of “treason” and of “being in the pocket of Putin” for meeting with the Russian president in Helsinki and accepting his word that Russia did not meddle in the US election. To this day there has yet to be any evidence presented that the Russian government did interfere. Brennan openly called on “patriotic” Republicans to act against this “traitor.”

Brennan and his deep state counterparts James Comey at the FBI and former Director of National Intelligence James Clapper launched an operation, using what we now know is the fake Steele dossier, to spy on the Trump presidential campaign and even attempt to entrap Trump campaign employees.

Notice a pattern here?

Now we hear that the latest trigger for impeachment is a CIA officer assigned to the White House who filed a “whistleblower” complaint against the president over something he heard from someone else that the president said in the Ukraine phone call.

Shockingly, according to multiple press reports the rules for CIA whistleblowing were recently changed, dropping the requirement that the whistleblower have direct, first-hand knowledge of the wrongdoing. Just before this complaint was filed, the rule-change allowed hearsay or second-hand information to be accepted. That seems strange.

As it turns out, the CIA “whistleblower” lurking around the White House got the important things wrong, as there was no quid pro quo discussed and there was no actual request to investigate Biden or his son.

The Democrats have suddenly come out in praise of whistleblowers – well not exactly. Pelosi still wants to prosecute actual whistleblower Ed Snowden. But she’s singing the praises of this fake CIA “whistleblower.”

Senate Minority Leader Chuck Schumer once warned Trump that if “you take on the intelligence community, they have six ways from Sunday at getting back at you.” It’s hard not to ask whether this is a genuine impeachment effort…or a CIA coup!

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Bernie Sanders's Hypocrisy on the F-35

09/30/2019Conna Craig

Things are about to get noisy in Burlington, Vermont. No, it’s not a rally for the state’s Brooklyn-born junior senator. After some pomp including a “mini air-show,” the first two of 20 F-35s have begun settling into their new home at Vermont’s Air National Guard base, located at the Burlington Airport.

The F-35s will replace a fleet of F-16s, which the Vermont Air National Guard flew for 33 years. In an interview with WCAX, a CBS-affiliated local news station, Colonel David A. Smith , Commander, 158th Fighter Wing, Vermont Air National Guard, said, “Bringing the F-35 to Vermont secures our future for decades.” According to WCAX, the Vermont Guard began lobbying for the F-35 in the mid-2000s. “When you consider significant milestones in our storied history, this one certainly rises to the top,” Smith said.

The F-35 has indeed risen to the top in terms of cost: at $1.5 trillion, it is the world’s most expensive weapons program. Earlier this year, Bloomberg reported that the F-35 jet “just got even costlier. The estimated total price for research and procurement has increased by $22 billion in current dollars adjusted for inflation, according to the Pentagon’s latest annual cost assessment of major projects.”

Despite the staggering costs, the super-stealth fighter plane is not living up to expectations. An April 2019 report by the Government Accountability Office (GAO) found that “F-35 aircraft performance is falling short of warfighter requirements – that is, aircraft cannot perform as many missions or fly as often as required.”

Initiated by the Department of Defense in 2001, the F-35 program was designed to provide “next-generation strike fighter aircraft” for the U.S. Air Force, Navy, and Marines. The GAO found that one of the most pressing issues with the program is spare parts: “DOD has spent billions of dollars on F-35 spare parts but does not have records for all the parts it has purchased, where they are, or how much they cost.” This situation, according to the GAO, risks the ability to support an expanding fleet. The U.S. plans to buy 2,500 jets total, with 700 to be purchased by foreign military.

The Vermont 20, however, are on schedule for arrival in Burlington. While some residents have expressed enthusiasm about the F-35s, not everyone is optimistic. Citizen coalitions have been fighting the basing for five years, citing noise concerns and the possibility of the F-35s carrying nuclear arms. The F-35 is as much as four times louder than the F-16. The latest sound map of the area that will be affected by noise levels of 65 decibels or higher includes 2,640 dwelling units and an elementary school. Rosanne Greco, a retired Air Force colonel, had initially supported the F-35 basing in Burlington, her hometown. Then she read the Air Force’s environmental impact statement. She told Time, “All I had to do was read what the Air Force said about the impact it would have. The evidence was overwhelming it would have a very negative effect on close to 7,000 people.”

Concerns about what will happen in Vermont with the arrival of the F-35s echo Sen. Bernie Sanders’ statements at his 2020 presidential campaign kickoff rally earlier this year:

“Today, we say to the military-industrial-complex that we will not continue to spend $700 billion a year on the military – more than the next ten nations combined. We’re going to invest in affordable housing, we’re going to invest in public education, we’re going to invest in rebuilding our crumbling infrastructure – not more nuclear weapons and never-ending wars.”

Why not call on Sen. Sanders for help?

Bernie Sanders supports the basing of the F-35s in Vermont. He said, in an interview with the Wall Street Journal, that it would be a “major blow” if the weapons program did not come to Vermont. Referring to the Vermont National Guard, Sen. Sanders stated, “If they don’t have planes to fly, there ain’t going to be too much for them to do.”

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Global Child Mortality Falls Again, As Market Trade and Economic Globalization Spread

09/30/2019Ryan McMaken

UNICEF this month released new data on infant and child mortality. As expected, the data shows continued declines in mortality for children, with most of the biggest gains coming in the lowest-income countries and in the developing world.

Of course, even in parts of the world where immense gains have been made, child mortality rates are still depressingly high, such as in Sub-Saharan Africa and in India where the under-five child mortality rates are 77.5 and 35.6 per 1,000 live births, respectively.

The region with the lowest mortality rate was western Europe with 3.7 per 1,000. That's down from 10.4 in 1990.

In the US, the rate fell from 11.2 to 6.5 over the same period.

Meanwhile, some countries long plagued by poverty have nearly attained the sorts of child-mortality rates enjoyed in the first world less than thirty years ago.

For example, as of 2018, Mexico's under-five mortality rate was 12.7. That's only slightly above the USA's 1990 rate of 11.2. Meanwhile, Malaysia and China have both pushed their child-mortality rates below what the first world was experiencing in 1990.

hild_mortality.PNG

Infant mortality rates show a very similar trend, so on the whole,  these number do show very real improvements.

To add context, however, it is important to consider abortion rates as well.

I know that in order to be intellectually fashionable, one is supposed to pretend that, say, an 8-month fetus is an un-person and that its termination is not to be included in health statistics in any way. But at the very least as an intellectual exercise, it is helpful to consult the available abortion-rate data, just in case infant mortality — as currently measured —  is declining while abortion is increasing.

Moreover, under some regimes — in Cuba, for instance — according to the journal Health Policy and Planning:

Physicians often perform abortions without clear consent of the mother, raising serious issues of medical ethics, when ultrasound reveals fetal abnormalities because ‘otherwise it might raise the infant mortality rate.’ ... At 72.8 abortions per 100 births, Cuba has one of the highest abortion rates in the world.

Fortunately, however, it appears that even if we consider abortion to be a type of infant mortality, mortality is indeed decreasing overall. 

According to the Guttmacher Institute, even in Africa, which (along with southern Asia) has long been the poorest region, rates are stable:

gutt1.PNG
 

Abortion appears to be on the decline throughout Asia:

gutt2.PNG

The abortion rate also has declined in the "developed world" and in "Northern America." Historical data suggests abortion rates in the US have been falling since the 1980s, and are now near a 45-year low.

Combined with a continued decline in child mortality, this should be considered progress indeed.

But what is the source of the progress? In the developed world, this is due to an increasingly globalized economic system that, for all its restrictions on markets, tolerates enough market freedom to allow for continued improvements in living standards. With more wealth comes more doctors, more hospitals, more supplies for sanitary medical services.

Some might claim "no, this economic progress is due to a larger welfare state and more socialism in the West." What this claim ignores, however, is that in order to redistribute wealth it must first be created. And it can only be created through voluntary market transactions such as production, trade, savings, and other types of wealth building. If it is a policy goal of politicians to redistribute ten percent of the wealth of the "rich people," that won't do much good if the rich people aren't that rich thanks to the impoverishment brought by interventionist and socialist policies.

In spite of the left's relentless efforts to crush the capitalist goose that has produced so many golden eggs, good news is nonetheless found in the developing world because so much of it it has moved on from the protectionist, socialistic economies which dominated there prior to the 1990s. Thanks to global trade and increasingly free (although, regrettably, not unhampered) markets, Latin America, southern Asia, eastern Asia, and even Africa have moved toward becoming middle income countries.

What We Mean by Economic Progress

And make no mistake: when supporters of freer markets call for more economic growth, the growth itself is not the end. The end goals are measured by metrics which include greater access to sanitation and clean water, rising literacy rates, and rising life expectancy.

Although it has become fashionable for anti-capitalists to deride as "money-obsessed" those who push for greater growth and greater income, the reality is that growth and income lead to things like healthier children.

Ludwig von Mises was addressing this shallow critique of markets when he wrote:

When the economists referred to progress, they looked upon conditions from the point of view of the ends sought by acting men. There was nothing metaphysical in their concept of progress. Most men want to live and to prolong their lives; they want to be healthy and to avoid sickness; they want to live comfortably and not to exist on the verge of starvation. In the eyes of acting men advance toward these goals means improvement, the reverse means impairment. This is the meaning of the terms "progress" and "retrogression" as applied by economists. In this sense they call a drop in infant mortality or success in fighting contagious diseases progress.

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Future Global Carbon Emissions Will be Driven by the Developing World

09/27/2019Ryan McMaken

For a variety of reasons, rich countries are more easily able to cut per capita carbon emissions. These include both better access to cleaner energy sources and the fact it is more politically feasible to cut emissions in a rich country than in a poor country. In poor and middle-income countries, voters and residents tend to live closer to subsistence levels and the cost of cutting emissions could be the difference between a steady food supply and malnutrition. It could mean a real cut to the availability of reliable medical services.

Proportionally speaking, a cut to carbon emissions in a wealthy country will rarely lead to such stark choices.

So, if we want to see where carbon emissions are likely to grow the most — or at least shrink the least — in coming decades we should be looking outside the wealthy West.

When it comes to total emissions, China has taken the top spot over the past decade, although as recently as 2000, China's total carbon emissions were lower than that of both the United States and the EU.

But Chinese carbon emissions are now double that of the US. As of 2014, China produced 10.2 billion metric tons, while the US produced 5.2 billion metric tons.

totalco2.PNG
 

Source: CO2 emissions, (metric tons per capita) via the World Bank; totals calculated using population data via World Bank.

As astute readers are likely, to note, however, the US has far fewer people than does China. So, not surprisingly, we find that the US still leads in per capital carbon emissions:

ercap_co2.PNG
 

Source: CO2 emissions, (metric tons per capita) via the World Bank.

The differences generally reflect the standard of living. For example, the US, Canada, and Australia, are among the countries with the highest number of vehicles per capita, and with the most living space per capita. The EU has noticeably lower carbon emissions because living standards are lower there, especially in Southern Europe and areas of central Europe that were once behind the Iron Curtain. Moreover, much of Europe has less extreme climate extremes as North America, meaning less of a need for cooling and heating.

However, because wealthier countries can more easily afford cleaner-burning fuels and alternative fuels, the largest decreases in carbon emissions (over this time frame) have come in the Wealthiest countries:

growthchange.PNG
 

Source: CO2 emissions, (metric tons per capita) via the World Bank.

I should note, however, that the measures of decline in the rich world come out a little differently when we measure "decline from peak." In the US, emissions peaked in 1973 at 22.5 metric tons per capita. In Australia, emissions didn't peak until 2008 (at 18.2 per cap metric tons), and emissions have dropped 15 percent since then. In Canada, per cap emissions peaked in 2003 at 17.4 metric tons, and have fallen 12.3 percent since then. In the US, emissions peaked The EU's per cap emissions peaked in 1979 at 10.5, and have dropped 36 percent since then.

It a totally different story in the developing world, however, where carbon emissions increased 179 percent in China, and 77 percent in India.

As we saw above, because of its high population, China has already overtaken every other country in terms of total CO2 emissions. As a proportion of global carbon emissions, China is closing in on 30 percent of the global total, while the US has now dropped below fifteen percent:

hare.PNG

Source: "Share of annual CO2 emissions" from Our World In Data.

Thus, the future is one in which talk about global-warming policy will only mean anything if it focuses on the developing world, and especially on China and India.

So far, however, these countries have shown little interest in abiding by the Rich World's proposed mandates for the developing world. China won't even talk about capping emissions before 2030, and as recently as 2015, India was saying it won't be cutting emissions for another thirty years. India has softened its predictions since then, but still refuses to commit to cutting use of coal, and won't accept legally-binding emissions goals.

The rich world has proposed sending the developing world huge subsidies for cutting emissions, but the developing world has learned from experience, and is unlikely to base national policy around a promise of future action from first-world regimes.

Thus, when asked about how to get China to commit to climate goals, activists like Michael Bloomberg appear to be at a loss .

Bloomberg claims "the public" will demand changes, but as Foreign Policy magazine has recently reported: "There is almost no daily public concern about climate change in China. The issue is fairly muted in Chinese-language media beyond coverage of Beijing’s own programs, and there is little individual concern about electricity usage or air travel."

As mentioned by Bloomberg, the average Chinese person is concerned about air pollution in Chinese cities, which is quite bad by modern rich-world standards. The regime is more likely to take action in that regard, but that can be done with far less impact on total carbon emissions than the global climate planners would like to see.

But it's not nothing. After all, local concerns over air pollution do have a meaningful effect on carbon emissions over time, because cleaner burning fuel has the benefit of reducing the sort of "smog" that directly impacts daily lives.

The problem — from the climate activists' perspective — is that this is likely to take place over a time frame much longer than the next decade or so. This is because the Chinese also have to take into account the impact further environmental regulation has on standards of living. In China, where the standard of living is much lower, cuts to that standard of living are far painful than they are in the developed world.

Like everyone else, though, the Chinese and the Indians want a city skyline without smog, and they want clean rivers. But they also want abundant energy. The answer lies in technological progress, which also has the added benefit of bringing cleaner water and air.

But while standards of living in the developing world remain so far below those of the rich world, this is likely to pose a political problem for any efforts to impose emissions restrictions on countries that haven't yet had their chance to get rich, too.

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Henry Hazlitt's Forgotten Book on Willpower

09/26/2019Jeff Deist

Self-help is largely a disreputable genre, in main because most answers to life are found internally, through trial and error. Digital charlatans, many of whom lack any real success in life beyond their dubious roles as "life coaches," litter our social media feeds. The fundamental question goes unasked and unanswered: "Why should anyone listen to you?" 

The old wisdom of truly self-made men like Dale Carnegie and Og Mandino, rooted in common sense and discipline rather than unwarranted self-regard, is largely gone now. But another unlikely source exists in the man of Henry Hazlitt, the great economics journalist who made himself into a financially successful writer and aristocratic figure—despite the modest circumstances of his birth.

Early in his career, just a few years following his Air Force stint during the Great War, he wrote a curious short book titled The Way to Will Power. It reads as you might expect from a young writer still finding his voice and style. But it is absolutely fascinating, and can be read (free here!) in just an evening. So put aside your Jordan Peterson or Gary Vaynerchuk1 videos and spend some worthwhile time inside the mind of the great Henry Hazlitt!

As a taste, here is Hazlitt's conception of willpower as the maintenance of a dominant, sustained desire. It is time preference applied to life's goals:

Will-Power, then, may be defined as the ability to keep a remote desire so vividly in mind that immediate desires which interfere with it are not gratified.

Understand me, I pass no moral judgment on the will per se. I do not condemn it, neither do I praise. It may be evil as well as good. A man may devote years to avenging himself upon another. He may put up with inconveniences; endure privation; submit to insults, humiliation, and risks of exposure, all of which he could avoid if he would consent to give up his aim. Napoleon consecrated his colossal will to the once glorious and now discredited occupation of trying to conquer the world.

But will does imply thought of the future. It is ready, if need be, to sacrifice the present to the future. And that is one of the great distinguishing marks between the civilized man and the savage. The savage did not save; he did not plant crops; he did not provide for old age. He did not even set aside food for the next day. When he got a piece of meat, he gorged himself, until he slept. He died young.

  • 1. I am not implying Messrs. Peterson or Vaynerchuk are charlatans, but merely that old wisdom should be sought out.
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Don't Let Bernie's Craziness Distract from Warren's Radical Tax Plans

Social Security is projected to consume an ever-larger share of America’s national income, mostly thanks to an aging population.

Indeed, demographic change is why the program is bankrupt, with an inflation-adjusted cash-flow deficit of more than $42 trillion.

Apr-23-19-SS-Fiscal-Trends.jpg

Yet Senator Elizabeth Warren wants to make a bad situation even worse.

In a blatant effort to buy votes, she is proposing a radical expansion in the old-age entitlement program. Here’s how USA Today describes her proposal.

Warren’s strategy would make major changes to Social Security, boosting benefits for all and imposing new taxes on high-income earners to finance them. …Under the proposal, everyone would get a $200 increase in monthly payments from Social Security, including both retirement and disability benefits. 

…Certain groups would see even larger increases. …In order to cover these benefits and shore up Social Security’s future finances, Warren would impose two new taxes. First, a new payroll tax would apply to wages above $250,000, with employees paying 7.4% and employers matching with 7.4% of their own. This is above the 6.2% employee rate that applies to current wages up to $132,900 in 2019, …Second, individual filers making more than $250,000 or joint filers above $400,000 would owe a heightened net investment income tax at a rate of 14.8%. …The Warren proposal breaks new ground by largely disconnecting the benefits that Social Security pays from the wages on which the program collects taxes.

In a column for the Wall Street Journal, John Cogan of the Hoover Institution explains why the proposal is so irresponsible.

It’s a strange campaign season, loaded with fantastical promises of government handouts for health care, college and even a guaranteed national income. But Sen. Elizabeth Warren ’s Social Security plan takes the cake. With trillion-dollar federal budget deficits and Social Security heading for bankruptcy, Ms. Warren proposes to give every current and future Social Security recipient an additional $2,400 a year. She plans to finance her proposal, which would cost more than $150 billion annually, with a 14.8% tax on high-income individuals. …the majority of Ms. Warren’s proposed Social Security bonanza would go to middle- and upper-income seniors. …The plan would cost taxpayers about $70,000 for each senior citizen lifted out of poverty.

Cogan also explains that Warren’s scheme upends FDR’s notion that Social Security should be an “earned benefit.”

The cornerstone of FDR’s Social Security program is its “earned right” principle, under which benefits are earned through payroll-tax contributions. …in a major break from one of FDR’s main Social Security principles, the plan provides no additional benefits in return for the new taxes. …Such a large revenue stream to fund unearned benefits, aptly called “gratuities” in FDR’s era, would put Social Security on a road to becoming a welfare program. …Ms. Warren’s proposal returns the country to an era when elected officials regularly used Social Security as a vote-buying scheme.

For all intents and purposes, Warren has put forth a more radical version of the plan introduced by Congressman John Larson, along with most of his colleagues in the House Democratic Caucus.

And that plan is plenty bad.

Andrew Biggs of the American Enterprise Institute wrote about the economic damage it would cause.

…the Social Security 2100 Act consists of more than 100% tax increases – because it not only raises payroll taxes to fund currently promised benefits, but increases benefits for all current and future retirees. …Social Security’s 12.4% payroll tax rate would rise to 14.8% while the $132,900 salary ceiling on which Social Security taxes apply would be phased out. Combined with federal income taxes, Medicare taxes and state income taxes, high-earning taxpayers could face marginal tax rates topping 60%. …Economists agree that tax increases reduce labor supply, the only disagreement being whether it’s by a little or a lot. Likewise, various research concludes that middle- and upper-income households factor Social Security into how much they’ll save for retirement on their own. If they expect higher Social Security benefits their personal saving will fall. Since higher labor supply and more saving are the most reliable routes to economic growth, the Social Security 2100 Act’s risk to the economy is obvious. …an economic model created by a team based at the University of Pennsylvania’s Wharton School…projects GDP in 2049 would be 2.0% lower than a hypothetical baseline in which the government borrowed to fund full promised Social Security benefits. The logic is straightforward: when taxes go up people work less; when Social Security benefits go up, people save less. If people work less and save less, the economy grows more slowly.

And the Wall Street Journal opined about the adverse impact of the proposal.

Among the many tax increases Democrats are now pushing is the Social Security 2100 Act sponsored by John Larson of House Ways and Means. The plan would raise average benefits by 2% and ties cost-of-living raises to a highly generous and experimental measure of inflation for the elderly known as CPI-E. The payroll tax rate for Social Security would rise steadily over two decades to 14.8% from 12.4% for all workers, and Democrats would also apply the tax to income above $400,000. …The proposal would also further tilt government spending to the elderly, who in general are doing well. …Democrats are also sneaky in the way they lift the income cap on Social Security taxes. The Social Security tax currently applies only on income up to $132,900, an amount that rises each year with inflation. But the new payroll tax on income above $400,000 isn’t indexed to inflation, which means the tax would ensnare ever more taxpayers over time. …The new 14.8% Social Security payroll-tax rate would come on top of the 37% federal income-tax rate, plus 2.9% for Medicare today (split between employer and employee), plus the 0.9% ObamaCare surcharge on income above $200,000 and 3.8% surcharge on investment income. …As lifespans increase, the U.S. needs more working seniors contributing to the economy. Yet higher Social Security benefits can induce earlier retirement if people think they don’t have to save as much. Higher marginal tax rates on Social Security benefits and income also discourage healthy seniors from working.

Now imagine those bad results and add in the economic damage from a 14.8 percentage point increase in the tax burden on saving and investment, which is the main wrinkle that Senator Warren has added.

Last but not least, using Social Security as an excuse to push higher taxes is not a new strategy. Back in 2008 when he was in the Senate and running for the White House, Barack Obama proposed a Warren-style increase in the payroll tax.

Here’s a video I narrated that year, which discusses the adverse economic effect of that type of class-warfare tax hike.

By the way, Hillary Clinton supported a similar tax increase in 2016.

Though it’s worth noting that neither Obama nor Clinton were as radical as Warren since they didn’t propose to exacerbate the tax code’s bias against saving and investment.

And don’t forget she also wants higher capital gains taxes and a punitive wealth tax.

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Her overall tax agenda is unquestionably going to be very bad news for job creation and American competitiveness.

The “rich” are the primary targets of her tax hikes, but the rest of us will suffer the collateral damage.

P.S. Instead of huge tax increases, personal retirement accounts are a far better way of addressing Social Security’s long-run problem. I’ve written favorably about the Australian system, the Chilean system, the Hong Kong system, the Swiss system, the Dutch system, the Swedish system. Heck, I even like the system in the Faroe Islands.

Originally published at International Liberty

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The Quarterly Journal of Austrian Economics Volume 22, Issue 2 is Now Available!

09/24/2019Mises Institute

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.

Available here.

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Prolonged Monetary Easing Paves Way for Wealth Redistribution

09/24/2019Victor Xing

Recent Democratic debates focused on rising wealth inequality, as candidates introduced various ideas to roll back disparity by taxing the affluent and redistribute their wealth. This would punish working professionals and small business owners without capital market access nor legislative influence. Meanwhile, malinvestment reliant on central bank stimulus and the unproductive of “zombie firms” sustained by ultra-low rates would proliferate unabated.

Both the GOP and Democrats tolerate monetary stimulus, for elected officials view effects of easy money (higher equities and lower bond yields) as beneficial to economic growth. This enabled the triumph of asset owners over wage earners to create the most potent inequality catalyst of the 21st century.

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Inherent risks in the financial market used to decimate malinvestment and define capital gain in terms of risk-adjusted returns. However, central banks’ volatility suppression policies such as quantitative easing and negative rates have enabled a decade of policy-fueled capital gain to outpace wage growth. In the case of QE, relentless bond buying and “reach-for-yield” would immediately boost asset prices, while impacts on the real economy (and especially wage earners) would materialize over Milton Friedman’s famous “long and variable (policy) lags.” Under monetary intervention, fortunes have diverged along the lines of asset ownership.

If central banks release volatility back into the market, malinvestment will reprice and valuations will again couple with risks, while prudent management would reward astute investors. This is an organic path to solve the inequality puzzle, but prolonged easing (as central banks mistaken structural low inflation from globalization for cyclical weakness) have increased developed economies’ sensitivity to higher interest rates. As major central banks grab the volatility tiger by the tail, they have fostered a vicious cycle where brittleness under ultra-low rates would beget even more easing:

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Wealth Redistribution Follows Monetary Intervention

As rampant asset price appreciation worsen inequality, angry voters left behind by a buoyant market would give rise to anti-establishment candidates unsympathetic to consensus views. As protectionist policies take hold, erosions to global value chains (GVCs) would lift inflation and threaten major economies’ debt-fueled growth model. To make matters worse, central banks resorting to money printing would risk sending bonds yields soaring under higher inflation and subsequently threaten risky assets.

Faced with voter anger and eager to counter the rise of anti-establishment challengers, elected officials would resort to another policy intervention to placate voters: wealth redistribution. In other words, wealth redistribution programs are often attempts to “amend” monetary policies’ distributional effects . Rather than unwinding policy disruption, authorities would double down with further measures to offset effects of prior policies. In the end, repeated interventions would exacerbate socioeconomic distortions to beget further redistribution.

At the July FOMC meeting, “a number of” Fed officials urged the central bank to be even more aggressive at interventions such as deploying quantitative easing, for they were encouraged by the perception  many of the potential costs of the Committee's asset purchases had failed to materialize.” The Fed officials did not connect the dots between rapid asset price appreciation, worsening inequality, and the 2016 election. As a result, their actions will likely pave way for further waves of follow-up wealth redistribution, as well as elected officials losing their seats to political insurgents capitalizing on popular discontent.

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