Power & Market
One of the many unfortunate consequences of the politicization of America is the natural reaction for political factions to bunker down with dependable talking points in the immediate aftermath of a tragedy. There is perhaps no issue where this is more obvious than gun control, where the political discourse has effectively devolved into sharing mindless memes before even the most basic facts are known. Obviously, the repeated reading of political scripts lends itself to the perpetuation of false conclusions and faulty analysis.
One of the best writers out there correcting the record is our own Ryan McMaken. His work has highlighted there is plenty of evidence that shows that there is simply no correlation between gun ownership rates and gun violence, the misuse of international comparisons to America, and that it’s a general mistake to look at a collective rate of gun violence in the US.
Beyond the issue of gun policy itself, there is another basic fallacy whenever there is a discussion over political solutions to a particular problem — a narrow focus on federal action.
For example, in the aftermath of this weekend’s shootings, there has been a lot of noise regarding the lack of federal responses to past mass shootings. Ignoring the questions of whether any sort of legislative response would be either desirable or constitutional, there is a fundamental problem in viewing the federal government as the only legislative body that creates public policy.
If we consider state governments, for example, we have seen a dramatic rise in gun control measures since the Parkland High School shooting in 2018.
As Pew Research noted in August of last year, 50 different gun-focused bills were signed into law by both Democrat and Republican governors just five months after the tragedy. This trend continued in 2019, with numerous bills working their way across the country, particularly the “red flag” laws that have even won the support of the NRA.
Source: Pew Research
(For a handy chart of 2018 legislation passed, click here.)
As one would expect, states have taken dramatically different approaches to the issue, based on their population and ideological bent of the legislature. California, for example, has passed some of the most restrictive laws in the country, including background checks on ammo purchases and a ban on large-capacity magazines that has been the subject of a legal challenge. In contrast, Oklahoma’s governor signed a “Constitutional Carry” bill just this year.
The advantages of this decentralized approach are numerous.
One, there are clear differences in the needs and wishes of a state like California and a place like Wyoming or Montana.
Two, it helps defuse the high-stakes game of political domination that has helped erode American civil society. If half the country views the right to bear arms as a natural right that serves as a vital bulwark against government tyranny, and the other views it as an immoral defense of normalizing weapons of war, there is very little room for compromise. Instead, these political disagreements become a battle of the politically powerful vs. the politically vanquished, with the sides being determined every two years. Control over the senate or the judicial system becomes a matter of self-defense. The result is the saying of “politics as war through other means” taking on a very literal reading.
A third advantage arises when we look at the performance of these state-passed gun laws, allowing the opportunity for unexpected consequences of these policies to play out in real life.
For example, we have seen how red-light laws in Maryland have led to the death of a man never convicted of a crime. Similarly, we’ve seen county-level nullification of tighter gun control laws in Washington state, with rural county sheriffs refusing to enforce laws promoted by urban politicians that they see as unconstitutional infringements on the second amendment (and an example of political decentralization beyond the state level).
A less obvious consequence is that pushing for legislation at the federal level helps feed the political theater of the absurd.
For example, if Republican politicians know that gun control is extremely unpopular with their base, but don’t want to be seen as being indifferent to a national tragedy, their response is to find easier targets to hit. This has played out this weekend with many Republican leaders, including the president, returning to the tired old crusade of ranting about video games and social media as the true villains of this weekend's tragedies.
Of course, we should not underestimate a politician's ability to turn obvious absurdity into law. It is easy to foresee there being enough dolts in Congress willing to act on such desperate scapegoating.
In fact, as some forms of gun control manage to win bipartisan support, the best protection against federal infringement of American gun rights is the very political dysfunction often lamented by the press and other “Serious People.”
Any American that values their gun rights should hope some new twitter spat between Trump and "the Squad" can prevent bipartisan cooperation toward the president's desire to “take the guns first, go through due process second.”
During my presidential campaigns, well-meaning supporters would sometimes suggest I stop emphasizing opposition to overseas intervention and focus on fiscal issues. I disregarded the advice, not only because adopting a noninterventionist foreign policy is crucial to restoring constitutional government but because it is impossible to be both a budget hawk and a war hawk. This is shown by the constant failure of so-called fiscal conservatives in the Republican leadership to fulfill their promise to cut spending.
Military spending is the second largest category of spending in the federal budget, behind Social Security spending. The US military budget equals the combined budgets of the next seven biggest-spending countries. Yet, many Republicans who claim to want to reduce federal spending want to increase the military budget.
Many Republicans also prioritize protecting the military-industrial complex over reducing spending on welfare and entitlement programs. This makes them eager to agree to a deal giving Democrats almost all of their welfare wish list as long as Republicans get almost all of their warfare wish list. Many Republicans do not have a principled objection to the welfare state; they just think Democrats want to spend too much on welfare and not enough in warfare. Many Democrats find increasing warfare spending acceptable; they just think Republicans want to overspend on warfare and underspend on welfare.
We saw the process at work again last week when the House passed a two-year budget deal that increases spending by approximately 320 billion dollars per year and suspends the debt ceiling for two years. Republican leadership ignored all these problems and claimed victory because the bill increases warfare spending.
A majority of Republicans opposed the spending bill, even though it was supported by President Trump and the Republican leadership. Of course, many more Republicans would have voted for the bill if a “conservative” Republican still held the speaker’s gavel.
Republicans’ love affair with the military-industrial complex is not the only reason they are unwilling to reduce spending, and military contractors are not the only Republican constituency demanding spending increases. Many farmers vote for Republicans who promise to cut most domestic spending except for agricultural subsidies. Also, many Republican Congress members support corporate subsidies and bailouts. Still, anyone who observes the behavior of Republican leaders around budget time can see they have a primary priority of protecting the military-industrial complex.
Republican Congress members’ support for ever-higher levels of military spending is justified by their support for an interventionist foreign policy. Some in Congress claim to favor both an interventionist foreign policy and reductions in military spending, but these so-called cheap hawks cannot resist the demands for an increased budget since they support a hyper-interventionist foreign policy. They are unable to effectively respond when their fellow hawks accuse them of compromising national security by opposing “adequately” funding the Pentagon.
As long as Republican leadership supports an interventionist foreign policy, it will never support reducing warfare or welfare spending. Therefore, fiscal conservatives must join libertarians to restore a foreign policy of peace and free trade. Lobbyists for the big military contractors would find it more difficult to make their case for big spending if Congress limits the defense budget to what is needed to defend America instead of wasting trillions in supposed efforts to police and democratize the world.
In a series of outstanding posts, the Bionic Mosquito has written on “The Search for Liberty.” In these posts, he presents a penetrating analysis of natural law and metaphysics. I admire these posts and have learned a great deal from them
In his latest post, he argues that Murray Rothbard’s defense of natural law fails. Rothbard thinks that human reason can establish natural law. But, Bionic says, “if each of us are free to make up our own minds – especially regarding ends – how will we come to a natural law that is useful toward liberty and peace? How will justice be determined? Who will arbitrate our ‘differences of opinion’? On what basis?”
Bionic thinks that if you say human reason can establish natural law, then you are holding that “the judged [human beings] can also be the judge.”
This criticism of Rothbard seems to me to be mistaken. Suppose, like Mises and Rothbard, that you claim reasoning can show maximum price laws cause shortages. You are not thereby claiming that it is up to human beings whether this is so. Rather, you are claiming that it is not up to human beings: the effect holds, regardless of what people think about it.
In like fashion, in claiming that human reason can establish natural law, Rothbard is not claiming that the content of natural law is up to human beings. I do not think Thomas Aquinas would have disagreed with this. He offered proofs, based on reason, that God exists. These proofs do not make it up to human beings whether God exists, nor does accepting their validity depend on first accepting Christianity. The principal aim of the first three books on the Summa contra gentiles is to demonstrate the existence of God, and some of God’s attributes, to unbelievers.
Even when I disagree with Bionic, though, I continue to learn from him
In a characteristically excellent post, the Bionic Mosquito calls attention to Murray Rothbard’s ethical “absolutism”. In this view, human beings can grasp what is objectively case in ethics. If, for example, stealing is wrong, its being wrong is not just an expression of individual or group preference. Rothbard held that an adequate defense of libertarianism depends on objective values and that political freedom was not the only such objective value needed for this defense. Moreover, this position does not contradict the subjectivity of preference in Austrian economics.
If there's anything I hate, it's a taxpayer-funded, pro-government party. I hate state dinners, I hate inauguration galas , and I hate the president's proposed "Salute to America."
The July 4 event, will feature military tanks lined up on the National Mall, war plane flyovers and a televised national address by the president. There will also be two firework displays.
And the event certainly won't be free:
According to The Washington Post , $2.5 million was diverted from the National Park Service to cover the costs associated to Trump's parade. Those funds, which were raised from entrance and recreation fees, were originally intended to help revamp parks across the country. Former Park Service deputy director Denis Galvin told the Post that the entire celebration usually costs the department around $2 million.
Trump tweeted on Wednesday morning that the parade will cost "very little compared to what it is worth." He also noted that the military already owns all of the equipment and the personnel needed to operate them, adding "all we need is the fuel."
But a finance expert told NPR that some of the planes and military weapons being used throughout the event cost thousands of dollars per hour to operate. The Boeing 747 plane used for Air Force One could be $205,000 an hour. Flying a F-35 jet can be $20,000 or more, according to Pentagon figures.
And just getting the military tanks from Fort Stewart in Georgia to Washington D.C. was costly. A White House aide told USA Today that the preliminary estimate for the transport was $870,000.
More observant readers will note, of course, that the event is not a salute to "America" at all. It is a salute to the Pentagon. According to the presdient, the purpose of the event is "showing to the American people, among other things, the strongest and most advanced Military anywhere in the World. Incredible Flyovers & biggest ever Fireworks!"
Were the event actually a salute to America, it would celebrate the private sector and all the taxpayers who are forced to pay more than $5,000 per year, per taxpayer, just to fund the Pentagon and its related agencies.1
Rather than a grotesque display of military hardware — such as the trillion-dollar boondoggle known as the F-35 — the "Salute" would line up tractor trailer trucks and commercial airliners to be admired by the people who benefit daily from the goods and services made possible by them. Meanwhile, the Salute would honor the truck drivers, airline pilots, insurance brokers, and janitors who produce all the wealth that is eventually skimmed by tax collectors to pay for — among other things — giant DC government parties.
At the Salute, government employees would be allowed to express their admiration to these productive taxpayers, with phrases such as:
- "Thank you for paying me a salary that is higher than what I could earn with my skills and education level in the private sector."
- "Thank you for providing us with state-of-the-art weapons, vehicles, and other equipment that keep casualties among American soldiers extremely low when compared with other militaries."
- "Thank you for subsidizing my higher education, my mortgage, and for providing funding for other programs designed to assist veterans."
- "Thank you for for getting up and going to work every day to so we call can enjoy a high standard of living, safe streets, and so much more that depends on a productive and hard working private-sector population."
Of course, if the president and members of Congress want to pay for a fireworks display out of their own pockets to show their thanks to the people who pay the bills, that would be fine.
Stop Making Independence Day a Military Holiday
In reality, no politico in DC is going to put on any events celebrating the taxpayer, and we all know it.
But at the very least, politicians and their fanboys could have the decency to stop pretending that Independence Day is the proper day for militaristic displays of pro-government nationalism.
After all, the spirit of the Declaration of Independence is one of contempt for the coercive apparatus of government. It is, essentially, a declaration of disobedience in the face of a military display by the British state.
It's true that, for obvious reasons, government institutions have little motivation to emphasize the Declaration of Independence or the philosophy it represents. This would amount to the government undermining itself. Consequently, many have attempted to turn the Fourth of July into a holiday that embraces vague notions of celebrating "America."
Independence Day should be a celebration against government and a reminder that Americans can once again walk away from tyranny, even if force of arms is required.
This does not defame or insult the American troops, but rather reminds us that we are a civilian nation and the government, and its troops, are supposed to be our servants rather than our masters. Slavish displays of patriotism and loyalty to the state are inimical to the real meaning of the holiday.
If Americans really wanted to celebrate the spirit of the Declaration, they'd demand a parade of smugglers, tax cheats, and secessionists. But then again, those people are usually busy working for a living, and it might be hard to get them to show up. Government employees, on the other hand, have plenty of spare time for yet another salute to themselves.
- 1. This calculation is based on the fact the military budget is more than 700 billion divided among 140 million taxpayers. See also: https://mises.org/wire/what-if-every-person-paid-equal-share-military-budget
Congressional lawmakers may need a primer on the meaning of a “budget.” As the average American family knows all too well, a budget is the way to determine what you can afford to spend. A family that exceeds its budget usually decides that it needs to eliminate wasteful spending.
But instead of cracking down on waste, some lawmakers want to double down. The wasteful program, in this case, is the Joint Strike Fighter, a warplane known as the F-35. The Trump administration, in its most recent defense spending request, asked for enough funding for 78 of these jets. As we’ll see, that was already a huge waste.
But lawmakers on the House Armed Services Committee want to spend even more than that. In the annual, must-pass National Defense Authorization Act, the committee: “Authorizes $10 billion to procure 94 Joint Strike Fighter aircraft, an additional 16 aircraft above the administration’s request.” Lawmakers say this spending will allow “the forces to modernize and equip themselves with the most advanced and capable fifth-generation aircraft.”
That would be great, if it was true. But the history of the F-35 tells a much different story.
First, let’s note that the entire program has been over budget almost since it was conceived in the 1990s. That’s partly because the military wanted one type of plane that could accomplish several different types of missions for three branches of the service. As the RAND Corporation later found, trying to build a one-size-fits-all platform meant spending more than building three separate platforms would have.
Over the years, the plane failed test after test, and had to be retrofitted at a cost of additional tens of billions of dollars. “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,” Bloomberg reported back in April. “The estimate for operating and supporting the fleet of fighters over more than six decades grew by almost $73 billion to $1.196 trillion.”
Second, the military and contractor Lockheed rushed the F-35 into the air, building new jets before the prototypes had completed their shakeout flights. When new problems, with both software and hardware, inevitably cropped up, planes had to be taken out of service and fixed.
Finally, while they were good at running up a tab, the planes don’t deliver value for the money.
It’s not clear that the jet, when it does fly, is even effective. For example, the Air Force is using much older planes in some deployments, because it wants its jets to be seen (and therefore feared). The F-35 doesn’t effectively project force. Far from becoming an effective weapon, the F-35 is proving to be a fragile one that cannot accomplish its missions.
Before he took office, President Trump promised reform. “The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th,” he Tweeted. His administration isn’t exactly delivering, but it’s not too late for lawmakers to reconsider.
One committee staffer recently told reporters that lawmakers want to collect more information about the F-35 and other weapon programs. “It’s been a while since we’ve seen an independent cost estimate from the services.” If the military will provide fair information about the cost of the F-35, lawmakers could still enact a sensible budget that would slash wasteful spending on this plane.
Gary S. Goldman is the nationally recognized host of “Business, Politics, & Lifestyles” a weekly talk show airing on WCRN 830 in Metro Boston MA. Learn more at garyonbpl.com.
Donald Trump has not had an easy, straight-forward relation with the Federal Reserve. He has both claimed to be a low-interest rate person and accused the Fed of keeping interest rates too low for political reasons. He has also expressed regret at appointing Jerome Powell and the White House has even explored the possibility of firing or demoting the Fed chairman . Apparently, President Trump’s intention was that Powell was to keep interest rates low, and he is not at all happy with the Fed’s policy of allowing them to increase. But why, since the Fed is not immune to political pressure , has the central bank allowed rates to rise in the face of presidential opposition?
In fact, it is likely that the market rate of interest is rising — for whatever reason — and the Fed has to respond in ways that keep a lid on credit creation so as to avoid bubbles. That is, in response to rising market rates, the Fed must raise rates on reserves lest its member banks flood the economy with new loans — and with money.
This is now a possibility because it looks like there is now an increased demand for loans. After the long years of the Great Recession, private companies are finally beginning to expand business again and demand more loans from the banks. What has caused this change is not an easy question to answer. It might be that there is now less regime uncertainty. The financial crisis of 2008 ushered in an era of increased interventionism on all fronts, which is hardly conducive to a good investment climate. Now, the current administration is perceived – rightly or wrongly – to be more friendly to free markets. Investors therefore feel more confident in expanding business. Furthermore, the many government interventions following the financial crisis kept alive businesses and maintained malinvestments that should have been liquidated at the outset of the Great Recession. So, instead of a short, sharp depression it took several years before capital goods were rearranged and markets adjusted to more realistic expectations of consumer demand. One of the main causes of uncertainty was the Fed’s many interventions in the economy, and it’s decision to normalize policy in 2014 — in spite of the fact this policy is only be carried out at extremely slow speed — is one of the main reasons the market is waking up again.
But whatever the causes may be, there is now more optimism in the market and an increased demand for loans. And since the money supply is so far not expanding at a particularly fast rate (see here for the Rothbard-Salerno money supply measure), and there is no increase in the savings rate to offset the increased demand for loans, private businesses are bidding up the price of credit.
Money-supply growth is relatively low:
U.S. personal saving rate 2008-2019:
The Fed Follows Along
In this environment, the Fed simply has to follow the developments in the market and raise its own rates unless it wants to start a new credit expansion.
Hayek described this mechanism in 1929 (p. 167ff): with a greater demand for loans on the part of business, the banks, operating on the fractional reserve principle, would have a choice: raise the interest rate to equilibrate the investment demand with the supply of savings, or issue new fiduciary media at the old rates — or at any rate, at interest rates lower than they would have been had they only been set by the demand for and supply of savings. So far, the banks have refrained from issuing fiduciary media, in large part because it is still a good deal to keep reserves at the Fed (and they are in any case not yet in a position to create new fiduciary media – see below).
The following chart illustrates the point: for the longest time both the market interest rate, illustrated by the 3-month LIBOR, and policy rates were virtually flat. Then in late 2015, LIBOR started rising ahead of the federal funds rate.
Market rate of interest versus policy rates:
There is a complicating factor: the amount of excess reserves has been steadily declining for two years now. Does this not mean that the Fed has failed in its attempt to neutralize the effects of its unconventional policies and that we’re in the midst of a huge credit expansion? After all, the amount of bank reserves with the federal reserve system has fallen from a high of nearly $2.7 trillion in August 2014 to about $1.5 trillion in May 2019. However, all demand deposits are still fully backed by reserves, if only barely so, and the reduction in excess reserves has therefore not caused a credit expansion. Rather, it should be seen in the same way as a private individual who has hitherto kept a large proportion of his wealth in the form of cash but then decides to invest it. Such behavior is precisely what we should expect when the economic environment is improving and business is picking up: During financial crises and depressions, people and businesses will pile up money balances because they are increasingly uncertain about the future. And when conditions improve again, and people begin to feel more certain, they will draw down their accumulated cash balances, and either consume more or invest their funds in the economy. . (For more on this, see Hoppe’s article "The Yield from Money Held.")
The banks function in precisely the same way, with excess reserves being the analogue of increased cash balances. So long as the banks operate at or above 100% coverage of demand deposits, their lending out excess reserves can no more be seen as credit expansion than can the decision of an individual to invest his accumulated cash balance.
Reserve balances (blue) and demand deposits (red):
Prospects for the Future
This does not mean that all is well. For example, a lot of businesses (e.g., Netflix) have been financed and refinanced when the interest rate was extremely low. Will they be able to transition to an environment where debt isn’t that cheap? And just how many zombie companies have been kept alive by artificially low interest rates?
More importantly, the market rate of interest has reversed its upward trend and is now falling again, which indicates that the budding boom of the last few years is already over. While the Fed appears to be oblivious to the possibility of an economic downturn, others are not so sanguine. The American trucking industry is in dire straits as demand for trucking has evaporated, suggesting in turn that there is significantly less business activity now than one year ago. Significantly, the Fed may inadvertently strengthen the downward trend, as the spread between the market rate of interest and the Fed’s policy rates has narrowed, while the Fed has chosen to maintain current rates . This means that it is now a better investment for banks to increase their balances at federal reserve banks than to loan out money, and the data seem to indicate that they have done so, as reserve balances have increased by about $125 billion from May 1 to June 12.
Far from being upset with his central bank, then, President Trump should recognize that the Fed's lack of dovishness has allowed more market freedom in setting the interest rate in a long time. This does not mean that God’s in his heaven and all’s right with the world. If the market interest rate continues to fall without any action by the Fed, we can expect liquidity to drain fast from the market, as the Fed rewards the banks for just sitting on their cash.
To pursue a more sustainable policy, the practice of paying interest on excess reserves must be ended. To do this without causing credit expansion, it is necessary to neutralize the reserves. This can perhaps be done by open market operations, as possible Fed nominee Judy Shelton has suggested, but a different approach is preferable: now is an excellent time to enforce a 100% reserve requirement on the banks and thereby prevent future credit expansion. While this may cause some disruption to the banking sector, the negative impact can be lessened by, for instance, at the same time liberalizing the financial sector, thereby significantly reducing compliance costs and increasing the possibilities for productive investment, or by shelving all talk of trade wars and tariff increases. Once that is done, there will be no reason to keep the Federal Reserve around and it will be a comparatively easy task to eliminate the central bank and finally remove the state entirely from the business of producing money.
The environment of persistently low interest rates is not going to last forever. But a recent drive to change European fiscal rules assumes low rates forever, and may have dangerous and unintended consequences. So far, after years of continuous growth, many European countries have not yet tackled the issue of debt: will they be able to do better with looser and less punitive rules?
In the aftermath of the European elections, the race to describe which (different) path the European Union should undertake has started. Among those who contributed with reform proposals, we find the IMF's Olivier Blanchard, in his column "Europe Must Fix Its Fiscal Rules," explained how Europe could better take advantage of the current low interest rate framework.
According to French economist Blanchard, Europe must begin to fix its rules about public debt and public deficit to align them with the current low-interest framework, which is different to the one the rules were initially written for. Admittedly, the fiscal-arm of the European economic-policy is surely something that can be improved. Nevertheless, Dr. Blanchard’s proposals would work as a shield for fiscally irresponsible policies put in place by countries now most in need of reform. These countries —especially Italy — have been putting off these needed reforms for years, and that have largely taken advantage of the east-money policies of crisis periods to do so.
A Closer Economic and Monetary Union?
Some parts of Dr. Blanchard’s proposal do indeed raise questions. The idea of creating a larger common European budget, in fact, is the notorious third pillar of an economic and monetary union which has been missing in the eurozone framework from its very beginning. One aspect of this are ongoing demands that the eurozone change the Growth and Stability Pact to abandon the 3% deficit cap and the 60% debt/GDP cap. Regarding the debt parameter, Dr. Blanchard argues that under a low interest rate regime, the need to have such a low debt/GDP ratio is questionable. Hence, Europe must allow its member states to coordinate and carry out a fiscal expansion, either at an individual level or with a common budget financed through the issuing of the often invoked eurobonds.
The Keynesian, centrist reading of the European reality, however, does not take into account any of the concerns about the moral hazard which is intrinsic to any monetary union. Moreover, it does not take into account the recent history of the debate over the budget proposals between the European Commission and the member states. In fact, Dr. Blanchard is of the view that “The eurozone has gone so far in piling up constraints, on the assumption that governments will always misbehave or try to cheat, that the result is sometimes incomprehensible.”
On the contrary, we are of the opinion that what the eurozone history can tell us, is that if the increase in debt was contained during recent times, that was exactly thanks to those constraints and rules, since southern member states (i.e., Italy and Greece, et al) have always pushed for more debt and never for less.
Moreover, we do not understand the need for a Keynesian fiscal stimulus to push the eurozone back to its "potential level." For example, the European Commission calculated for Italy (one of the countries which would benefit the most from a loosening of the eurozone fiscal rules) a -0,1% negative output-gap for 2018 and a -0,3% negative output-gap for 2019, which they predict will close again in 2020. That considered, to increase the fiscal room of a country like Italy would mean to permanently enlarge the public sector, since to boost GDP beyond its potential level the stimulus must be perpetrated indefinitely.
The path that has brought interest rates down to the zero lower-bound has not been coincidental either, but it has been a direct consequence of the policy carried out in these years by the ECB. Thanks to those policies, which have had a Cantillon-effect backlash that have modified the relative prices of government bonds for the sake of countries with larger debts. Those very member states with troubling and urgent issues have been able to “kick the can” and ignore the risk-pricing assessments made by the market because of the protection and the extended time granted to them by the quantitative easing.
All this contradicts what Dr. Blanchard implicitly argued about moral hazard: the expansive monetary policy and consequent lowering of the interest rates — which was meant to grant time and breathing room to the troubled countries to fix their numbers while allowing them at the same time to use fiscal policy as a cyclical tool — was instead used to put off the need for decisions and reforms that was already compelling years ago, worsening those structural problems that hold to the present disappointing level their potential GDP.
To remove those rules would allow a serious situation not to become far worse. The current interest rate scenario is not going to last forever, but it will indeed change as soon as the quantitative easing of the ECB comes to an end. Removing what few restraints exist strikes us as an unnecessary hazard.
What, sir, is the use of a militia? It is to prevent the establishment of a standing army, the bane of liberty. …Whenever Governments mean to invade the rights and liberties of the people, they always attempt to destroy the militia, in order to raise an army upon their ruins. —Elbridge Gerry, Fifth Vice President of the United States
All too often, government-produced defense is discussed as an ideal — a force that protects people and their rights. Seldom does reality enter the picture. Standing armies, after all, often do not only practice defense.
Once established, a government’s military, its bureaucrats and leaders, as well as laymen all face a different set of incentives. Those with a job related to the military have an incentive to keep their job. In most cases, they probably also desire to see the scope of their power expanded and their pay increased. The support for war then, is the ideal policy for achieving those goals. These incentives may not transform a champion of peace into a war-loving bureaucrat, but they can have effects on the margins. It’s much easier to rationalize a war if your job depends on it.
Changes on the Ground
More interestingly, the average citizen’s incentives change. To see what I mean, let’s take a look at the introduction of the permanent standing army in 19th century America.
Prior to the rise of the U.S. standing army, relations between natives and white settlers were relatively peaceful. It’s not that white settlers always felt warm feelings toward native Americans (or vice versa). Many did not. The reality of fighting one’s own battles, however, entailed significant costs. In an essay entitled " Exchange, Sovereignty, and Indian-Anglo Relations," Jennifer Roback remarks: "Europeans generally acknowledged that the Indians retained possessory rights to their lands. More important, the English recognized the advantage of being on friendly terms with the Indians. Trade with the Indians, especially the fur trade, was profitable. War was costly" “More than is generally appreciated, the contact (between Indians and whites) was even friendly, or at least peaceful.”
After the US maintained a permanent army, however, things changed. Most of the disincentives for war disappeared. The monetary costs that maintained the army were spread out over the entire populace and those who demanded the army’s services paid no additional price. Nor did they now need to risk their own life. Frontiersmen could now call upon subsidized troops to do their fighting for them. This had the effect of lowering the threshold for when settlers could justify resorting to violence against their Indian neighbors.
"In Raid or Trade? An Economic Model of Indian-White Relations," the authors accounted for a number of possible contributing factors, such as population change and newly settled land, and concluded the establishment of a standing army during the Mexican War had an independent effect of an increase of almost 12 battles a year. They estimated the buildup of the standing army before and during the Civil War caused an increase of around 25 battles a year.
As the quote at the beginning of this piece indicates, the Founding Fathers feared a standing army, and for good reason. While its ideal purpose is to create peace, we do not live in a world of ideals. The actual effects are to lower the costs of war to those who would have it, and to create a special-interest group of bureaucrats and military personnel who have a vested interest in advancing the war machine. As long as the army stands, peace is unlikely to be achieved or long-lasting.
If you take an hour drive down the I-65 corridor south from Nashville, Tennessee, you’ll find yourself in Columbia. My hometown isn’t quite as sleepy of a southern town as it used to be, much to my chagrin, but it’s still home nonetheless. The county seat of Maury, Columbia does have a handful of claims to fame to save itself from being a complete afterthought. If claiming a title means you get to keep it for all time, then I suppose it’s proper that Columbia still styles itself as the “Mule Capital of the World.” It’s been a century and change since the mule trade featured prominently in Columbia’s economy, but if a former president is still “Mr. President”, then I suppose Columbia is still “Mule Town”.
Don’t think for a second this isn’t an adequate cause for celebration. They’ll be putting on their 179th Annual Mule Day celebration, which is more appropriately titled Mule Days than Mule Day since it stretches nearly a week long, replete with fried foods, music, and even a parade down Main Street. While he wasn’t born there (Pineville, NC gets that honor), Columbia likes to pride itself as being the home of an American president. The James K Polk Home, the final residence of the nation’s 11th executive, sits a couple blocks down from the courthouse. It’s a museum now, among blocks of buildings that would make one think they had traveled back to the 19 th century were it not for a Dairy Queen.
Another notable Columbian is John Harlan Willis, whose name graces a Columbia bridge that crosses the Duck River. Nearly 40 of the 3,503 individuals who have been awarded the Congressional Medal of Honor are natives of Tennessee, and one of them is John Harlan Willis. Willis was born in Columbia in 1921. He graduated from my high school alma mater, Columbia Central, in 1940, only a short 64 years before myself. I remember walking every day by the display case, which contained his portrait. He was a baby-faced young man with a bit of a mischievous grin wearing his dark blue uniform. John wanted to become a doctor, as he was far more inclined to aid the ailing around him than to bring them to any harm. It was no surprise, then, that when the United States entered World War II, he found himself taking up the role of a Pharmacist’s Mate, First Class, in the U.S. Navy. Willis enlisted in 1940, receiving his naval recruit training at Naval Training Station in Norfolk, Virginia, before moving on to his hospital corpsman training at the Norfolk Naval Hospital in Portsmouth. By the onset of 1944, having spent most of the war learning the healing arts rather than combat, Willis was finally transferred to the 3 rd Battalion, 27th Marine Regiment, 5th Marine Division and sent to the Pacific theater. It was on Iwo Jima where, on the last day of February 1945, he would earn the Medal of Honor.
The official citation that accompanies Willis’s Medal of Honor reads like something straight from a Spielberg film. While in the process of aiding a number of his fallen comrades during the fierce fighting near the Japanese-held Hill 362, Willis was struck by shrapnel from a nearby grenade explosion and was ordered to abandon his charges back to the safety of an aid station. After receiving some bandaging for his wounds, but before being given leave to return to action, Willis made his way back to Hill 362 to resume treating marines who were suffering significant casualties. Then, while administering plasma to the wounded, Japanese forces began to litter his position with hand grenades. He picked up the first to land in close proximity and hurled it back at the foes atop the hill. He then grabbed another, and another, until he had returned eight grenades. It was the ninth grenade to come down upon him that he could not return in time; it exploded in his hand, killing him instantly. Inspired by the scene before them, Willis’s companions rallied from their entrenchment and, despite being outnumbered and charging uphill, they launched the attack that would ultimately repulse the enemy. The citation ends with the statement, “His exceptional fortitude and courage in the performance of duty reflect the highest credit upon Willis and the U.S. Naval Service. He gallantly gave his life for his country.”
While Willis was unquestionably selfless and heroic, I’m not so sure about that last assertion. Did John Harlan Willis really give his life for his country? Did he race back to the front, dodging fire and explosions, in order to please his country with his sacrifice, or rather that he could be the difference in his allies returning home safely? Perhaps we can find some answer in this photograph, which shows his widow Winfrey Willis holding her baby boy in one hand and taking her husband’s posthumous medal in the other from the Secretary of the Navy. Does Mrs. Willis look like a woman content to know her husband’s violent death somehow contributed to protecting America from an enemy it provoked in the first place, or rather a physically and emotionally exhausted single mother who would hand the medal right back if it meant little John could be hoisted in the air by his namesake? I tend to think if John were here today, he would tell you that, if indeed his life were destined to be extinguished on Iwo Jima that day, then he wasn’t giving his life for his country, but rather he was giving it to save his brothers in arms.
John Harlan Willis was laid to rest at Rose Hill Cemetery, just a couple blocks north of the courthouse. He sits today among Civil War soldiers, a handful of congressmen, a senator, and even a NASCAR driver. The hallowed burial ground, the honors, the memorial halls at medical centers, and even the destroyer USS John Willis are a bad trade for a devoted husband and father. He wanted to become a doctor. It might be a stretch to hope that he would have cured cancer had he survived the war, though he would’ve been valued all the same. A man who would brave bullets and shrapnel time and again, practically defenseless, in order to give a wounded man some plasma sounds like someone who would’ve made for an excellent neighbor. But we’ll never know what sort of family the Willis’s could’ve produced, the kind of physician he could’ve become, nor the sort of compassionate presence he could’ve brought to the community. And so the real tragedy of the tragic war hero is not in what they managed to accomplish, but rather in what they were never afforded the chance to.