Power & Market
“America … goes not abroad in search of monsters to destroy.”
– President John Quincy Adams (1767–1848)
Last week, President Donald Trump ordered the US military to invade a then friendly country without the knowledge or consent of its government and assassinate a visiting foreign government official. The victim was the head of Iran’s military and intelligence. The formerly friendly country is Iraq. The killing of the general and his companions was carried out by the use of an unmanned drone. The general was not engaged in an act of violence at the time he was killed, nor were any of his companions. They were driving on a public highway in a van.
The president’s supporters have argued that the general’s death was revenge for Americans and others killed by the general’s troops and surrogates. Trump has argued, more importantly, that he ordered the general’s death because of what evil the general might order his own troops and surrogates to carry out in the future.
Here is the backstory.
The president has taken an oath to uphold the Constitution. The Constitution provides only two means for the federal government to kill a human being. The first is pursuant to a declaration of war, which only Congress can make. That permits the president to use the military to kill the troops of the government of the country against which war has been declared. Congress has not declared war on Iran.
The second way that the Constitution permits federal government killings is pursuant to due process. That means that the person to be killed is lawfully in custody, has been properly charged, lawfully tried and fairly convicted of a capital crime, and that the conviction has been upheld on appeal.
Can the president kill foreign military personnel and claim the justification of self-defense? The laws of war permit him to do that, but self-defense — actually, defense of the country — only comes into play when the foreign military personnel are physically engaged in killing Americans or are certainly about to do so. That justification only applies — the law here is six hundred years old and has been consistently applied — when force is imminent and certain.
Were imminence and certainty not the requirement, then nothing would prevent a president from slaying any monster he chose simply based on a fear that the monster might someday strike. Such a state of affairs is contrary to two presidential executive orders, one issued by President Gerald R. Ford and the other by President Ronald Reagan, and neither negated by Trump. Such a territorial invasion and killing also violate the United Nations Charter — a treaty that prohibits unlawful invasions of member nations’ territories and killings of their officials outside of a lawful and UN approved declaration of war.
Roaming the world looking for monsters to slay not only violates long-standing principles of American domestic and international law, but also it violates basic Judeo-Christian moral principles, which teach that the end does not justify the means and that might does not make right.
Think about it. If the American president can kill an Iranian government official in Iraq because of fear of what he might do — without a declaration of war or any legal process — can the Chinese president kill a Mexican government official visiting in Texas or an American intelligence agent encouraging revolution in Venezuela for fear of what they might do?
This is not a fanciful or academic argument. It not only goes to the fidelity to the rule of law that we require of our leaders in order to maintain personal liberty and limited government, it also goes to our safety. We have laws to prevent wanton killings, lest killers turn on us.
In Robert Bolt’s play “A Man for All Seasons,” Sir Thomas More argues with his son-in-law, William Roper, about the extent of the law’s protections of those universally recognized as evil. Roper says that he would cut down all the laws in England to get rid of the Devil.
More counters that even the Devil is entitled to the benefits of the law. Then he hurls this zinger:
And, when the last law was down, and the Devil turned round on you? — ?where would you hide, Roper, the laws all being flat? This country’s planted thick with laws from coast to coast? — ?man’s laws, not God’s? — ?and, if you cut them down? — ?and you’re just the man to do it? — ?d’you really think you could stand upright in the winds that would blow then? Yes, I’d give the Devil benefit of law, for my own safety’s sake.
More crystalized the dangers of those who — like Trump — take the law into their own hands for the sake of expedience or to rid the world of a monster. Without law, how does one decide what monsters should go and what monsters may stay?
When President Obama used drones to kill peaceful uncharged Americans in Yemen, candidate Donald Trump condemned that behavior. He offered that as president, he would bring the troops home, stop the nation building, quit being the world’s police force, and end the endless wars. Instead, his act of state terrorism has succeeded in doing what the general he killed could never do while alive. Trump has united the Iranian people behind their fanatical government, and he has caused the Iraqi government to kick out all American troops — troops that had no lawful or moral basis for being there in the first place and whose numbers have only increased.
Trump cut down the laws to get to the Devil. Whom will he kill next?
Last week, Miami art gallery Art Basel sold, for $120,000, a piece of art composed of a banana duct taped to a wall. At least one other identical piece sold for a similar amount. A third piece was priced at $150,000. The banana used in the display is a real banana, and on Saturday, a performance artist named David Datuna ate some of it.
Datuna's stunt merely illustrated what everyone should have already known: the value of the artwork had almost nothing to do with the banana itself. Its value came not from the amount of labor that went into it or from the cost of the physical materials involved. A spokeswoman for the museum summed up the real source of the item's value, noting, “He [Datuna] did not destroy the artwork. The banana is the idea.”
In other words, the people who purchased the art weren't actually purchasing a banana and tape. The person who purchased the art was buying the opportunity to communicate to peers that he or she was rich enough to throw around $120,000 on a work of art that would soon cease to exist. This was a transaction that involved purchasing status in exchange for money. The banana was only a tiny part of the exchange.
Moreover, the transaction offered the opportunity for the gallery, the art seller, and the art buyer to all further increase their status by being the topic of discussion in countless news articles and discussions in social media. As was surely anticipated by the artists and everyone else in the banana sale, the media could be counted on to act as if this art was something new, outrageous, or exciting. "Art world gone mad," the New York Post announced on its front page. Hundreds of thousands of commentators in various social media forums chimed in to comment on the matter.
One wonders, however, how many times this shtick can be repeated over and over until people lose interest. Apparently: many times. After all, this sort of art is not a new thing. For decades, avant-garde artists have been using garbage and other found objects to create art. And people with a lot of disposable income have been willing to pay a lot of money for it. It's all basically an inside joke among rich people. And regular people have the same reaction over and over again.
But there's absolutely nothing at all that's shocking, confusing, or incomprehensible from the point of view of sound economics. Transactions like these should only surprise us if we're still in the thrall of faulty theories of value, such as the idea that goods and services are valued based on how much labor and materials went into them. That's not true of any good or service. And it's certainly not true of art.
Is It Garbage or Is It Art?
In fact, two identical items can be valued in two completely different ways simply if the context and description of the objects changes.
According to the Daily Mail, a 2016 study suggests that people value ordinary objects differently depending on what they are told about the objects: "According to the new research, being told that something is art automatically changes our response to it, both on a neural and a behavioural level."
In this case, researchers in Rotterdam, the Netherlands, told subjects to rate how they valued objects in photographs. When told that those objects were "art" people valued them differently.
In other words, the perceived value of objects could change without any additional labor being added to them, and without any physical changes at all.
The value, it seems, is determined by the viewer, and we're reminded of Carl Menger's trailblazing observations about value:
Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men.
One moment the viewer may think he's looking at garbage, which he has likely learned is of little value. When told that said junk is really "art," the entire situation changes. (Of course, we would need to see their preferences put into real action via economic exchange to know their preferences for sure.)
The change, as both Menger and Mises understood it, is brought about not by changes to the object itself, but by changes in context and in the subjective valuation of the viewer.
A glass of water's value in a parched desert is different from that of a glass next to a clean river. Indeed, a glass of water displayed in a museum as art — as in the case of Michael Craig-Martin's "An Oak Tree" — is different from water found in both deserts and along rivers. Similarly, the value of a urinal displayed in a museum as art — as with Marcel Duchamp's "Fountain" — is different from a physically identical urinal in a restroom.
The Daily Mail article attempts to tie the researchers' observations to the theories of Immanuel Kant on aesthetics. But, one need know nothing about aesthetics at all to see how this study simply shows us something about economic value: it is, to paraphrase Menger, found in the "consciousness of men."
And it is largely due to this fact that centrally planning an economy is so impossible. How can a central planner account for enormous changes in perceived value based on little more than being told something is art?
Is a glass of water best utilized on a shelf in a museum, or is it best used for drinking? Maybe water is best used for hydroelectric power? Exactly how much should be used for each purpose?
When discussing the problems of economic calculation in socialism, Mises observed that without the price system, there simply is no way to say that a specific amount of water is best used for drinking instead of being used for modern-art displays. Nor is the fact that people need water for drinking the key to determining the value of water. (See the diamond-water paradox.)
In a functioning market, consumers will engage in exchanges involving water in a way that reflects how much they prefer each use of water to other uses. At some moments, some consumers may prefer to drink it. At other moments, they may prefer to water plants with it. At still other moments, they may want to contemplate an art display composed of little more than a glass of water. The price of water at each time and place will reflect these activities.
Without these price signals, attempting to create a central plan for how each ounce of water should be used is an impossible task.
Do we need to know why people change their views of object when told they are art? We do not. Indeed, were he here, Mises would perhaps be among the first to remind us that economics need not tell us the mental processes that lead to people preferring different uses for different objects, although we can certainly hazard a guess. It's unlikely that the buyer of the taped banana bought it because he or she planned to eat it.
But even if we are wrong about the buyer's motivation, the fact remains that the buyer valued the banana at $120,000 for some reason — and the value was subjective to the buyer.
Similarly, we can't know for sure why each individual values water for drinking over "art water" or vice versa. And a government planner or regulator — it should be noted — can't know this either.
Warren and Sanders et al. are misled by the government’s inflation of the money supply into believing that the stagnation and decline of our economic system in recent decades is the result of growing economic inequality.
The truth is that both the appearance of increasing wealth of the rich and the reality of declining actual wealth are the result of the government’s pouring new and additional money into the stock and real estate markets, where the effect is to raise prices.
Since the rich own far more stock and real estate than the average person, the effect of this rise in prices is that economic inequality appears to increase. (Somehow the sharp declines in apparent economic inequality that necessarily accompany market busts, are not reported.)
While the rich appear to gain because of the rise in the prices of their assets, in reality they lose.
This is because the taxation of their profits on the sale of stocks and real estate prevents the funds accruing to them from keeping pace with the rise in prices. Their funds grow only to the extent of what remains after the payment of taxes.
For example, imagine that the infusion of new and additional money into the stock and real estate markets increases prices there by 10%. Originally, one had an asset worth $1 million. Now it can be sold for $1.1 million.
But if the capital gains tax is 25%, the seller ends up with only $1.075 million, a 7.5% gain, while the prices of the assets available for him to purchase have increased by 10% on average.
This is a major way in which inflation — the government’s expansion of the money supply — destroys an economic system. It creates the appearance of business prosperity along with the fact of general impoverishment, which results in blaming poverty on business and profits.
The Problem with the Wealth Tax
One "solution" to inequality — put forth by Elizabeth Warren — is the wealth tax. Warren advocates a wealth tax that every year would take away 2% of the wealth of everyone worth more than $50 million, and 3% of the wealth of everyone worth more than $1 billion. This taxing away of capital means less means of production and thus less production and higher prices. At the same time, it means less demand for labor and thus lower wages. Elizabeth Warren’s program is a call for mass impoverishment. And the same is true of the essentially similar programs of her fellow haters of the rich, such as Bernie Sanders and Ocasio-Cortez.
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.
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.
In September 11, 2001, terrorists flew planes into the World Trade Center and the Pentagon. Hours later, more than 2,900 people were dead, the overwhelming majority of them in the civilian office buildings at New York's World Trade Center.
Within 24 hours, the US government was doing what it does best. It demanded more power, and set to work coming up with schemes for using its enormous military and national security apparatus — a group of agencies which had received more than half-a-trillion dollars during that fiscal year.
When the US national security state failed on 9/11, not a single person with any significant level of responsibility lost his job.
Notably, the very same people who failed utterly to provide national security on September 11th were the same people who were entrusted with providing security on September 12. Except now, those people, and their government agencies, were granted more power, bigger budgets, and were held to less legal and public scrutiny than ever before.
By November, the federal government had already rewarded itself lavishly for its incompetence. Congress passed, and the President signed, the USA Patriot Act a measure that transformed American jurisprudence and made every American a suspected terrorist, open to surveillance by government agents. DC politicians had also created yet another federal department, the department of Homeland Security, because apparently the Defense Department is concerned with things other than the defense of the US "homeland."
This war against the American people was complemented by ordinary shooting war against other nation states, including ones that had absolutely nothing to do with the 9/11 bombings. The invasion of Iraq, for instance was built upon intelligence manipulated and distorted by the White House and by CIA Director George Tenet. Iraq was not threat to the United States at all. But Washington, DC loves a war, and in the wake of 9/11, the American public was apparently willing to believe anything. So the politicians got their war. And have gotten many since.
Meanwhile, back home, the US government was transforming itself into something that looked like it was modeled more on China than on a government that claimed to revere the Bill of Rights.
As Jacob Hornberger writes :
Moreover, the [Chinese] regime can and does torture prisoners. Again, there is nothing anyone can do to prevent this. The torture is oftentimes so brutal that some independent minded, courageous individuals who were were protesting come out of the prison process as broken people, ones whose minds have been fixed through brutal and tortuous reeducation.
Before the 9/11 attacks, that sort of thing could not happen here in the United States, at least not legally. If the government arrested someone, it was required to file formal written charges (e.g., an indictment) that would notify the person of what he was being charged with. He also would be entitled to a jury trial instead of judge trial or a tribunal trial. He had the right to an attorney to represent him. He also had a right to an independent judge. And no cruel and unusual punishments, such as torture. That’s all because our American ancestors had the wisdom to guarantee such rights in the Bill of Rights.
What if U.S. officials did to someone what the Chinese government has done to Simon Cheng. In that event, the Constitution enables him to file a petition for writ of habeas corpus, a right that stretches back several centuries in English history and which actually is a lynchpin of a free society. An independent federal judge orders the government to bring the person to court and show cause why he should not be released. At the habeas hearing, the judge orders the government to charge the person with a crime or release him. No indefinite detention, like there is China. And of course no torture.
All that came to an end with the 9/11 attacks. At that point, the national-security branch of the federal government adopted many of the same powers as the Chinese communist regime, and without any amendment to the Constitution. The military and the CIA, two of the principal elements of the national-security state, now wield the power to take anyone, including both Americans and foreigners, into military or CIA custody by simply labeling them a “terrorist,” hold them as long as they want in a military dungeon or secret CIA prison camp, torture them, and even assassinate them. While Americans still have the right to file a petition for habeas corpus, federal judges will customarily defer to the Pentagon and the CIA on their determination that a person poses a threat to “national security.”
In today's America, everyone is a potential terrorist. The country is always at war. "National security" demands American citizens be murdered by drone without trial. Or dropped into Guantanamo and forgotten about. Just in case.
In the wake of the terrorist attacks, we were often told that we must go on about our daily lives, or else "the terrorists win." Except it wasn't the terrorists who did the most to change America. For America, the post-9/11 world meant more searches, more regulations, more spying, more debt, and more endless haranguing about how we must all "support the troops" and how "you're either with us or with the terrorists." "We must sacrifice" we were told. Your "freedom" demands it.
What was the upside? So far, there's no reason to believe that there is one. No evidence is provided, especially since the federal government maintains everything is secret, classified, or unfit for the public. "Trust us, we're keeping you safe" is the constant refrain. For some reason, a lot of people buy it.
Meanwhile, the feds themselves didn't sacrifice anything. For the feds, it was just more of what they'd always wanted. More taxpayer money. More power. More untrammeled authority to imprison, spy, tax, search, and control. Their abysmal failures on 9/11 led to no changes, no reforms, and no accountability. For them, everything got better.
If the destruction of American liberties was something the terrorists wanted, then they got what they wanted, too.
Stocks fell last week following news that the yield curve on Treasury notes had inverted. This means that a short-term Treasury note was paying higher interest rates than long-term Treasury note. An inverted yield curve is widely seen as a sign of an impending recession.
Some economic commentators reacted to the inverted yield curve by parroting the Keynesian propaganda that recessions are an inevitable feature of a free-market economy, whose negative effects can only be mitigated by the Federal Reserve. Like much of the conventional economic wisdom, the idea that recessions are caused by the free market and cured by the Federal Reserve is the exact opposite of the truth.
Interest rates are the price of money. Like all prices, they should be set by the market in order to accurately convey information about economic conditions. When the Federal Reserve lowers interest rates, it distorts those signals. This leads investors and businesses to misjudge the true state of the economy, resulting in misallocations of resources. These misallocations can create an economic boom. However, since the boom is rooted in misperceptions of the true state of the economy, it cannot last. Eventually the Federal Reserve-created bubble bursts, resulting in a recession.
So, recessions are not a feature of the free market. Instead, they are an inevitable result of Congress granting a secretive central bank power to influence the price of money. While monetary policy may be the prime culprit, government tax and regulatory policies also damage the economy. Many regulations, such as the minimum wage and occupational licensing, inflict much harm on the same low-income people that the economic interventionists claim benefit the most from the welfare-regulatory state.
The best thing for Congress and the Federal Reserve to do after the bubble bursts is to let the recession run its course. Recessions are painful but necessary if the economy is going to heal from the damage done by government’s inflate-tax-borrow-spend-and-inflate-some-more policies. But Congress and the Fed cannot resist the cries to “do something.” So, Congress spends billions on wasteful “economic stimulus” plans and bailouts of politically influential corporations. Meanwhile, the Fed tries to “prime the pump” via new money creation, restarting the whole boom-and-bust cycle.
This is not to say that no one would experience economic difficulties in a free market. Businesses and even whole industries would still close because of changing consumer tastes, new competitors offering superior products, or bad business decisions. There may even be bubbles in a free market as some investors misread fads as permanent changes in consumer preferences. But periods of downturn would be shorter, and most would only affect specific industries rather than the entire economy.
President Trump’s imposition of tariffs (which are a form of taxes on American consumers) has been particularly harmful. The tariff war has not just raised prices on imported consumer goods. It has also cut off markets for export-reliant businesses, such as manufacturers that import materials used to construct their products.
The trade dispute with China may be the event that pushes the US economy into a major recession or even a depression. However, the trade war is not the root cause of the downturn. The next recession, like every recession since 1913, will come stamped “Courtesy of the Federal Reserve.” The only way to end the boom-and-bust cycle and restore peace, prosperity, and liberty is to end the welfare-warfare state, repeal the Sixteenth Amendment, and audit then end the Fed.
Alexandria Ocasio-Cortez has suggested eliminating the Department of Homeland Security.
Her motivation seems to be reducing federal immigration enforcement powers, although it doesn't necessarily follow that abolishing the DHS would actually accomplish this.
Nevertheless, the DHS is just yet an other cabinet level agency pushed to facilitate even more government spending, and has never been necessary. Its abolition would be a step in the right direction.
The thing about raising government agencies to cabinet-level status is that the move makes it easier for the bureaucrats in charge of the agencies to politically agitate for more government spending in their favor, and to push bigger government in general. It's no coincidence that as the US government has grown ever larger and more intrusive, so has the number of cabinet-level agencies. So now, we have the EPA, the SBA, and the departments of HUD, Energy, and Education all provided with more direct access to the president and the media. Everything they do is deemed "essential." Everything they do, we're told, is a matter of national importance.
DHS is no different. When the 9/11 attacks occurred, they exposed the sheer incompetence, laziness, and inefficiency of government security and defense organizations. Year after year, hundreds of billions of dollars were poured into these organizations — in addition to the countless billions spent on the Pentagon. But when they were shown to be asleep at the switch, what happened? Rather than have their budgets cut, and senior officials fired in droves — as should have happened — George W. Bush and his cronies decided that what the federal government really needed was a new department into which billions more in taxpayer money could be poured.
The was politically important in the sense that making DHS a department made it easier to call for every more funding for its constituent agencies. But much of what the department does was already done before 9/11 — including immigration regulation.
What was new was the federalization of airport security, and new slush funds for domestic police departments.
In a 2017 article titled "Four Agencies to Abolish along with the Dept. of Education," I put DHS first on the list (followed by the EPA, Interior, and Agriculture):
One: The Department of Homeland Security, $51 Billion
Somehow, the United States managed to get along for more than 225 years before this Department was created by Congress and the Bush Administration in 2002.
The Department quickly became a way for the federal government to spread federal taxpayer dollars to state and local law enforcement agencies , thus gaining greater control at the local level. The DHS administers a number of grant programs that have helped to purchase a variety of new toys for law enforcement groups including new weapons, and new technologies. Also included in this is the infamous military surplus program which is supplies tanks and other military equipment to police forces everywhere from big cities to small rural towns. The crime-free town of Keene, New Hampshire made sure its police received a tank through this program as have many larger cities.
When the Orlando gunman opened fire in the Pulse nightclub in 2016, the police eventually rolled up in a tank — which did nothing to stem the bloodshed inside the club.
Police claim they need these half-million-dollar vehicles from the DHS to deal with civil unrest. Never mind, of course, that every state already has a National Guard force specifically for that purpose.
While the Department was created in response to the 9/11 attacks, the Department does nothing to address anything like a 9/11-style attack, and all the agencies that were supposed to provide intelligence on such attacks — the FBI for instance — already exist in other departments and continue to enjoy huge budgets.
DHS also includes agencies that already existed in other departments before, such as the Federal Emergency Management Agency, and the agencies that handle immigration and customs. Those agencies should either be returned to the departments they came from or be abolished.
And, few would miss the Transportation Security Administration — an agency that has never caught a single terrorist, but has smuggled at least $100 million worth of cocaine.
Alexandria Ocasio-Cortez is usually wrong about pretty much everything. But on this she's accidentally correct: abolishing the DHS would be a net good for America. It was never necessary, and is mostly a channel for violating the rights of Americans through a de facto standing army of federal agencies and local cops pumped up on federal dollars and military equipment. Politicians in Washington DC would hate to see it go. But the taxpayers would likely benefit were it to disappear forever.
Arthur Laffer, the recent Presidential Medal of Freedom winner and occasional Peter Schiff gambling partner, made headlines yesterday for questioning the value of an independent Federal Reserve.
As he told CNBC's Squawk Box:
I don't understand why the Fed is independent, to be honest," said Laffer, a former economic advisor to President Donald Trump and former President Ronald Reagan. "Fiscal policy is not independent. Military policy is not independent. Social policy is not. Why should monetary policy, this very powerful tool to control the economy not be subjected to democracy just like every other instrument of government?"
As expected, this quickly came under attack by Fed romanticists who believe that an independence should never be questioned (a faith they grasp on to in spite of the record of both Fed failures and its history of being politically influenced.)
In fact, as Dr. Joseph Salerno has written about over the years, there may be real value in getting rid of the illusion of an independent central bank.
As he wrote in The Austrian:
The desideratum of the Austrian political economist with classical-liberal or libertarian leanings involves the complete separation of government and money through the establishment of a commodity money like gold (or silver), the supply of which is determined exclusively by market forces. Nonetheless, there is great merit in replacing the opaque and pseudo-scientific control of “the money supply process” by entrenched Fed employees and officials with overtly political control of money by elected officials and partisan administration appointees. There are a number of benefits of stripping the Fed of its quasi-independent status and transforming it into a handmaiden of the Treasury, as the American Monetary Institute (AMI) and early Friedmanite reform programs call for.
Of course, a better approach would be to open the Fed up to competition by repealing legal tender laws and exempting parallel currencies from taxes. But, considering other Fed reforms that have been discussed in recent years, Laffer's suggestion is hardly that outlandish.
I woke up this Independence Day morning, surprised to find out that Bill Greene, the great 2016 faithless elector who cast his vote for Ron Paul, passed away. Among other things, Bill was a fierce advocate of making gold and silver legal tender, and was an assistant professor at South Texas College. He was an early supporter of Ron Paul, his support going as far back as Paul’s 1988 campaign.
[Editor's note: see Greene's Mises Institite author profile.]
Last summer, I had the privilege of interviewing Bill while working on a paper on the history of the Mises Institute and the Austrian Revival. Here, we discussed various different subjects, including Ron Paul’s 1988 campaign, and the growth of the Mises Institute. This has not yet been published, and I would like to do so as a tribute to Bill. Below is our interview, conducted on 6/19/18:
Atilla Sulker: Describe the state of the libertarian movement in 1988, and the extent to which the Mises Institute influenced the overall movement in America at this time?
Bill Greene: In 1988, the Mises Institute was only six years old, having split off from the Cato Institute in 1982 (a Mises co-founder, Murray Rothbard, had co-founded Cato). Up until that split, the Cato Institute was the leading influence on the libertarian movement in the United States since its founding in the mid-1970s (not long after the founding of the Libertarian Party itself in 1971 – Cato’s co-founder, Ed Crane, was the LP’s National Chair from 1974-1977). Even at such a young age, the Mises Institute had already begun to have a strong impact on the libertarian movement – specifically, on its economic policy foundations. Cato’s focus was on government policy recommendations from a libertarian-leaning position. Since that time, the Mises Institute’s influence on libertarianism in the U.S. has equaled, if not surpassed, Cato’s influence. [The Mises Institute was in fact never part of Cato.]
AS: Describe the relationship Ron Paul had with the Mises Institute in 1988, and the extent to which the organization influenced his campaign platform?
BG: Ron Paul’s relationship with the Mises Institute in 1988 was initially through one of its co-founders, Llewellyn (Lew) Rockwell, who had been Paul’s chief of staff, (from 1978-1982) when Paul was a Republican U.S. Congressman. When Rockwell left for Mises in 1982, Paul – who had been heavily influenced by the works of Rothbard beginning in the 1970s – continued his relationship with the co-founders of Mises, drawing much (or most) of his policy positions from the writings of Austrian school economists. When Paul ran for President as the LP nominee in 1988, most of his campaign platform was pulled from these same policy positions. He has continued to be a Senior Fellow of the Institute since that time, often working, writing, and speaking with others connected to it.
AS: Is there a point in Dr. Paul’s career in which it appeared that the Mises Institute’s influence on him was climactic?
BG: I don’t think so, because the relationship has always been symbiotic, and Ron Paul was already firmly in the Austrian school’s camp even before the Mises Institute was founded. Since its beginnings, it’s been difficult to separate the two from each other.
AS: Describe the influence the Mises Institute had on Dr. Paul’s VP candidate Andre Marrou.
BG: I don’t have any personal knowledge of the Mises Institute’s influence on Andre Marrou.
AS: Describe the overall size and sentiment of Ron Paul’s 1988 presidential campaign based on your experience.
BG: Ron Paul’s 1988 presidential campaign appeared to me to be more extensive than the LP’s past campaigns, as this was the first time they had two former elected legislators on the ballot (Paul was a former GOP U.S. Representative, and Marrou was a former LP Alaska Representative). As usual, the campaign’s biggest challenge was getting on the ballot in all 50 states plus the District of Columbia. Due to highly restrictive ballot-access laws in a number of states, Paul’s campaign was only on the printed ballot in 46 states & DC (although he did achieve write-in status in Missouri –and in North Carolina, where I headed the N.C. Students for Ron Paul and participated in ballot-access petitioning). Despite Paul’s (and Marrou’s) extensive travels across the country, the campaign was excluded from any debates and only achieved 432,179 votes (0.5%) – still twice as much of Lenora Fulani’s (New Alliance Party) campaign, which actually did achieve 50-state ballot access.
AS: Describe the nature of Andre Marrou’s 1992 Libertarian presidential campaign.
BG: I was not active in his 1992 presidential campaign, although I remember reading news stories on it here and there, such as when he received the highest vote total in the primary results of the first town in the nation to report its votes (Dixville Notch, NH).
AS: Briefly describe, based on your experience, the development of the libertarian movement in America up from Dr. Paul’s 1988 presidential campaign to his 2008 presidential campaign, and outline the role of the Mises Institute in this development.
BG: Based on my own experience, the Mises Institute played a vital role in the development of the libertarian movement in America during the 20 years after Dr. Paul’s first campaign for U.S. president. During the first decade, they published and disseminated massive amounts of literature, newsletters, books, audio, video, and more; once the internet became more and more ubiquitous, they were able to have an ever-growing impact, rivalling the much better-financed Cato Institute in scholarly publications and economic education activities. The Mises Institute’s website soon became the highest-trafficked economics website in the world, and when Dr. Paul decided to run for president again in 2008, he was able to draw upon, and direct his new followers to, that large body of works in support of his policy positions. As a result, his following grew and became ever more educated in libertarian thinking.
BG: When I ran for various political offices over the years, most of my own policy positions were influenced by publications I got from the Mises Institute. This was especially true of my unsuccessful campaign for the Florida House of Representatives in 1994, when I became the first state house candidate to be officially endorsed by the Political Action Committee of the nascent Republican Liberty Caucus (the “libertarian wing of the GOP” co-founded in 1991 by Paul). I had followed Dr. Paul out of the LP and back into the GOP, and I have been a member of, and active in, the RLC since that time.
AS: Is there anything else we should know about Dr. Paul’s 1988 campaign, or anything pertaining to the subject matter?
BG: My favorite story from Ron Paul’s 1988 campaign for President is from the time our N.C. Students for Ron Paul group brought him to the University of North Carolina at Greensboro for a speech to around 150 students and local residents. Following his speech (which professed many of the same policy prescriptions as his speeches today), he opened the floor for questions. A local group of Socialist Workers’ Party members were in attendance, and began challenging his free-market stances in a number of different areas. I remember Dr. Paul’s eyes lighting up at that, as he almost gleefully shot down every challenge with logical rebuttals, point by point. Twenty years later, when I chanced to run into Dr. Paul at a local restaurant while he was campaigning in Florida, I mentioned that event – and he remembered it, clearly and (quite obviously) fondly, remarking on how much fun he had that day. I was, to say the least, impressed.