Quarantine Chronicles, No. 1: The History of the Austrian School

Quarantine Chronicles, No. 1: The History of the Austrian School

03/25/2020Tho Bishop

With many of our readers having more time on their hands while practicing social distancing, the Mises Institute is exploring our online archives and offering topic-specific collections of curated content. This series, we are calling it the "Quarantine Chronicles: A Shelter-at-Home-Series," will highlight essays, articles, and clips that may not be as widely known, but will provide a deep understanding of important concepts and history.

On the topic of the History of the Austrian School of Economics, we recommend some of the following selections:

Long-Form Reading:

Video:

Audio:

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Back to Work: America Has No Choice if It Is to Avoid Total Disaster

03/30/2020Robert L. Luddy

China and Russia are open for business and working at close to capacity as America shutters most all business and industry in states such as Pennsylvania, New York, California, New Jersey, and Connecticut. In many cases only select manufacturing companies are allowed to operate, which means that most manufacturers will be short of parts and services necessary to produce goods.

Our leaders are creating an economic crisis and a major national security risk with limited data. The cure is far worse than any perceived impact from COVID-19. Our economy is both fragile and interdependent, an economic reality not understood by our leaders as they order mass closings of many states’ business and industry.

Thomas Sowell wrote, “There are no solutions. There are only tradeoffs.” Sowell was informing us that wise and sound judgments are imperative during any crisis.

An opinion piece by John P.A. Ioannidis, professor of medicine, epidemiology, and population health at Stanford University, is headlined, “A Fiasco In the Making? As the Coronavirus Pandemic Takes Hold, We Are Making Decisions Without Reliable Data.”

This season the flu has killed 22,000 Americans versus 388 dead from COVID-19. This the hard data available. There has been no national discussion about the flu but complete panic on the coronavirus.

The restaurant industry, which is the largest employer in America, is closed in most states. Now we will begin to witness the industries that support restaurants and hotels begin to shutter.

Marriott Corporate in Bethesda, Maryland, has furloughed 66 percent of its employees and cut the pay of the remaining employees by 20 percent. Such actions by major employers will have a devastating impact on the US economy.

The Big Three automakers and their suppliers are closed, which means hundreds of thousands of workers are laid off and at home. This will quickly lead to more layoffs and many small business failures. There is no amount of government money that can make up for an economy closed and workers staying home.

We all know that food and supplies are critical to families. Most individuals assume these products and services will be available. But as we have witnessed, when demand exceeds supply and businesses are shuttered, supply runs out.

Supply of goods and services is quickly becoming a more important national issue than the COVID-19 panic. The virus will not adversely impact most Americans, but they will sustain substantial financial losses, and at some point supplies will run out.

Schools can shut down, and sick people should stay home, along with older or at-risk individuals, until the panic subsides, but the healthy must be allowed to work.

Every family, state, city, and business can make the best decisions during this crisis, but we cannot have simplistic top-down mandates.

We are quickly moving toward a supply problem. Just-in-time inventory means we make products as needed. If the producers are closed, we run out of goods quickly.

Wiring $3,000 to most Americans may seem like a solution, but unless we have a supply of the goods families need, the money will not help. The best way for families to have income is for America to be open for business and not risk shortages and civil unrest. It is noteworthy that liquor, ammo, and guns sales are robust.

The federal government has no money and is $23 trillion in debt. Now Congress contemplates a $2 trillion economic bailout, which is pushing the limits of how much Congress can borrow and will eventually create a major financial meltdown. The solution is a robust economy producing goods, services, and financial stability.

All healthy Americans who want to work must be allowed to return to work no later than March 30. This commonsense approach will allow new production and for the healthy to support those in need.

I urge President Trump to speak to Americans from a Midwest manufacturing plant, away from the Swamp, and appeal to all governors and Americans to overcome their fears and take reasonable precautions, but allow America to open for business by March 30.

Originally published by American Spectator.

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Cash and the Coronavirus

You knew it was bound to happen.  Mainstream media organizations are using the novel coronavirus epidemic to open a new front on the War on Cash by trying to instill a fear of cash into the American public.  As Nick Hankoff trenchantly writes:

Cash has been the target of the banking and financial elites for years. Now, the coronavirus pandemic is being used to frighten the masses into accepting a cashless society. That would mean the death of what’s left of our free society. ​

CBS NewsCNN, and other mainstream outlets are fearmongering again. Alarmism is nothing new in the media world, but this time, it’s not about triggering panic buying or even pushing a political agenda. 

The war on cash is about imposing a new meta-narrative. As economist Joseph Salerno explains, the cashless society forces all payments to be made through the financial system. It doesn’t end with monopoly control over transactions, though. 

Being bound to computers for transactions kicks the door wide open to hardcore surveillance of personal activity and location data. Being eternally on the grid means relentless taxation and negative interest rates, which the Federal Reserve is already gearing up for. 

None of this bothers the well-heeled boosters of a cashless society or their lackeys in the media. They want Americans reading about the threat of coronavirus cooties on their cash, which is absurd.

Germs, of course, can loiter all over credit and debit cards, smartphones, ATMs, and every other cash alternative device.  Too bad implanted microchip technology isn’t further along, the banksters must be thinking. 

In another CNN article, readers are practically shamed for withdrawing cash to save during a crisis. Every sentence, every word, every letter of the article is nuts.

A CBS News article wistfully describes how "bank note avoidance" was one of the measures taken to stem the novel coronavirus outbreak in South Korea, whose central bank removed all banknotes from circulation for two weeks and even burned some of them.   The article even touts the practice of Iranian banks, which announced they will no longer accept cash from customers.   The article also reports that "even" the laggard Federal reserve has gotten into the act, with a Fed spokesman announcing that dollar bills that circulated in Europe and Asia are being quarantined for 7 to 10 days as "a precautionary measure." 

A CNN Business did its part to whip up the public's fear of cash in an article relating the findings of a medical study of cash that did not spare the  reader the revolting details--or a crushingly trite warning from WHO :
According to a 2017 study conducted in New York City, researchers found microorganisms living on the surface of cash, ranging from mouth and vaginal bacteria to flu-like viruses. The World Health Organization recommends washing your hands after handling money, especially before eating food.

 

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Uh-Oh, The FDIC Exhorts Us Not to Hit the (Bank) Panic Button

Our rulers want us to ignore the tried and true adage that cash is king in a crisis. The FDIC has just released a video exhorting people to keep their money in the banks. The spokesperson is the FDIC Chairman herself, Jelena McWilliams, who earnestly assures us: "Your money's safe at the banks. The last thing you want to be doing is pulling your money out of the banks thinking it's going to be safer some place else. . . . You certainly don't want to be hoarding your money in a mattress. It didn't pan out well for so many people. [Huh, why, when, where?]" Indeed, Ms. McWilliams seems desperate to stave off a potential bank panic when she declares, "No depositor has lost a penny of their insured deposits since 1933 when the FDIC was created."

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Congress Can't Be Bothered with Voting on the Largest Spending Bill in History

03/27/2020Ryan McMaken

It seems that a great many Americans pine for dictatorship. How else to explain the outrage over the fact that a member of Congress has requested that the Congress actually vote on the largest spending bill in human history? It seems the preferred method of lawmaking now is to have a small number of politicians decide law without the annoying formalities of legislative votes.

The current controversy centers on the fact that Rep. Thomas Massey from Kentucky things Congress should have a recorded vote on the massive kleptocratic bill currently working its way through Congress.

As it is, Washington's most powerful politicians want to use unanimous consent to pass the bill. This means a small handful of members of Congress can show up, say "aye" when prompted, and the bill will pass. Indeed, even if some members show up and say "nay," the chairman can still just declared the vote "passed" based on his or her own opinion of which way the voice vote went.

On other words, what Washington's "leaders" want is a rubber stamp.

And a rubber stamp legislature, something we have long seen in countless despotic regimes throughout history, is apparently what many Americans want.

One need only peruse the social media responses to Massie's opposition to a rubber stamp to see just how little respect there is for the concept of the rule of law. Many of the responses are repeatable here, but a they could certainly be said to be in line with John Kerry's intellectually stunted comeback: "Congressman Massie has tested positive for being an asshole."

Of course, who could expect anything more to the point than this. Obviously, people like Kerry aren't going to argue "I firmly believe members of Congress ought not be required to accountable for their votes." He won't say "the basic tenets of representative government mean nothing to me."

But that's what opposing Massie's effort means.

"Why, this is an emergency!" is the claim made by those who think it perfectly fine if a small group of millionaires passes legislation in the shadows — legislation designed largely to prop up the asset prices of billionaires so they can keep being billionaires. Meanwhile, regular people will get one or two month's worth of rent payments. And then they're on their own in the worst job market since the Great Depression.

Small and medium-sized business will suffer the worst, but the "good" news is billionaires will be able to use their new windfall to buy up the assets of small businesses while increasing the market share of America's mega firms.

Of course, if members of Congress cared anything at all about ordinary people, they'd be passing massive amounts of deregulation, and huge cuts to the government's regulatory agencies which have made the cost of doing business in America skyrocket in recent decades. They'd bring all the troops home, end all the wars, and use the savings to give Americans a tax cut. Such a move would greatly increase the ability of small firms to compete against the billionaires. It would make it easier for people to at least scratch out a living during these hard times we're now entering. It would allow markets to provide the sort of innovation and flexibility this country now badly needs.

But none of that will happen. The US government functions primarily under the delusion that "too big to fail" is a respectable governing strategy. Of course, if you're not too big to fail, you're out of luck.

But Congress has another reason why they shouldn't have to vote: they're too scared to emerge from their mansions and penthouses to show up in Washington to vote. They're afraid they might get sick. If this is really the case, it's hard to see how these people could function at all if they weren't already rich and powerful. They're fortunane they have underlings and staffers to run all their errands for them and protect them from the larger world. On the other hand, any member of Congress can easily avoid showing up for a recorded vote if it comes to that: resign immediately. They won't be missed.

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Why We Need Price "Gouging"

In the of light of the COVID-19 pandemic almost every government in the world has (once again) denounced so-called "price gouging." Politicians both to the left and right really think that with outlawing price gouging, they can save the consumer from the greedy gougers that are willing to take advantage and exploit consumers.

Price gouging is defined as the practice of raising a products price to an "unfair" or "excessive" level during a crisis or an emergency. However, anyone can understand that the law itself is very troubling since it remains unclear how high is "too high." Of course, it ultimately depends on the arbitrary decision of the almighty bureaucrats and their own concept of how prices and markets should work.

They make the mistake of ignoring what a price really means. Price is a signal we use to understand how much do consumers really value a certain good. Value, as Ludwig Von Mises pointed out, is subjective the value of a good or service  varies greatly by time and place. Again, value doesn’t exist in things themselves, but is formed in the minds of human beings. For example, a bottle of water has way bigger value for a person that is trapped in the Sahara desert rather to a person that has drinkable water from his tap in his house.

What we have here is a simple supply and demand. The demand is surging while on the other hand the supply (at least short term) is dwindling. High prices affect how the sellers and buyers act. For the consumer, they reduce the rising demand while encouraging conservation. By doing so these prices allow these products to be bought by other people that value them more and therefore are willing to pay more. Especially in a time of crisis, many people may want a specific product, but if prices don't go up, those who are most in need are unlikely to even have the option of buying what they need most. Those items will have been hoarded by others because the goods remained at such a low price. 

As we can see from today’s world, this is exactly the case, with goods like hand sanitizers and toilet paper being emptied from their shelves in just a matter of minutes. The beauty of the price system is that when unhampered,  it manages to allocate resources to those who truly value them more. And those who value them more are often those with the greatest need.  If people are willing to pay more than they would usually pay for a product that doesn’t mean that they are exploited. In reality it means that they value more Product ‘X’ for the “Y’ money they gave up. If they didn’t then the transaction would never take place.

Many places are now restricting purchases on items like hand sanitizers to two or three per person. But these rules can easily be bypassed through multiple store visits. Rationing favors also the wealthy and people that have the proper connections in the black market. Banning price "gouging" hurts people even more. When free pricing isn't allowed, goods usually end up with people that are lucky to show up first and that's often people with the best access to transportation and free time. There is nothing moral about that in reality it hurts people even more by destroying the incentives for conservation.

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The FDA Continues to Actively Undermine America’s Response

03/24/2020Tho Bishop

For many Americans, the FDA has taken on a sort of mystique as the gold standard of medical guidance—similar to the emotional connection many Britons feel for the National Health Service (NHS). Unfortunately, both of these government bureaucracies actively undermine the healthcare systems of their nation. As the continuing coronavirus places a larger microscope on the agency’s actions, hopefully more are waking up to the costs inherent to their management.

From the beginning of this battle, the FDA has slowed American medical companies' ability to respond at full capacity.

For example, it was FDA regulations that significantly slowed the creation of testing kits in the early days of the crisis. While the CDC’s government labs were creating fatally flawed COVID-19 tests, private labs were desperately trying to receive waivers to ramp up their own efforts. On Feburary 24, the US Association of Public Health Laboratories made desperate appeals to get into the game. Although the FDA tweaked its rule five days later to allow labs to begin testing kits (though it still barred their active use without approval), it wasn’t until March 16 that the FDA finally removed its grasp on the private sector and allowed labs get approval through state agencies.

The impact was immediate:

Testing Chart

Source: Twitter, @noahopinion.

In the words of Balaji S. Srinivasan, a Peter Theil-ally who interviewed with the administration in 2017 to lead the agency, “FDA’s initial delay set the US back six weeks, blinding us to the scale of the epidemic, and turning a containable epidemic into a crisis.”

While the FDA has taken its foot off the hose of testing production, it continues to restrict their uses. Earlier this week, the FDA took the position that their policy changes will not apply to at-home testing. This decision has forced labs that have developed and produced such products to shutdown distribution that was already underway. The bureaucratic freeze on testing forces Americans into hospitals, clinics, and other testing centers. As Srinivasan notes, this decision openly promotes greater spread:

This is not the only example this week of the FDA undermining recovery efforts. Recently Elon Musk acquired a stock of a 1,000 respirators. Unfortunately on Monday, the shipment ended up being stalled at LAX by none other than the FDA.

With the focus now on treatments and preventative measures, the FDA continues to be an anchor dragging down the ability of the American private sector to innovate our way out of a crisis.

Trump has famously pushed a mix of antimalaria medicine and Z-Packs as a potential treatment. Although the media have tried to attack the president for offering unqualified medical advice, his medical advice has been supported by studies in countries outside the FDA’s restrictive regime. As the Wall Street Journal reports:

A more recent French study used the drug in combination with azithromycin. Most Americans know azithromycin as the brand name Zithromax Z-Pak, prescribed for upper respiratory infections. The Z-Pak alone doesn’t appear to help fight Covid-19, and the findings of combination treatment are preliminary.

But researchers in France treated a small number of patients with both hydroxychloroquine and a Z-Pak, and 100% of them were cured by day six of treatment. Compare that with 57.1% of patients treated with hydroxychloroquine alone, and 12.5% of patients who received neither.

This is not the first time that FDA red tape has allowed Europe to lead in health treatment. The overbearing American regulations have even pushed US athletes overseas for rehab treatments and other basic health needs.

As the Trump administration continues to indicate that they are pushing away from a total-lockdown approach to the virus and toward opening the American economy back up, breaking down the American bureaucratic machine is going to be vital to minimizing the already catastrophic damage done.

Hopefully, a silver lining of this current crisis will be an American awakening to what has long been clear: the costs of the FDA bureaucracy is a far greater public health risk than any of the advantages that it claims to provide. It’s past time to scrap the agency altogether. 

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Jeff Deist Argues Against Bailouts in The Hill

03/24/2020The Editors

Mises Institute president Jeff Deist tells The Hill why the "stimulus" bailout is very bad for America in this excerpt from his op-ed:

The unasked question lurking underneath the Senate bill is this: How do we pay for it all? Congress doesn’t have $2 trillion to spend, and 2020 tax receipts won’t begin to cover the bill. This means the federal government will effectively “print” the money, likely in a circuitous way by issuing new Treasury debt and using the Federal Reserve Bank as a backstop to buy it all if investors won’t. And what sort of investor wants to loan Uncle Sam money for 10 years at less than 1 percent interest anyway? 

At least Sen. Bernie Sanders (I-Vt.) is more honest: He thinks government simply should give Americans money every month, with or without a crisis. We now see plainly that congressional Republicans agree with him, at least conditionally. What a sad state of affairs. 

If the bailout of 2008 had worked, U.S. companies would not need a bailout today. They would have thanked their lucky stars then, and focused on building healthier balance sheets with more cash and less debt. Let new owners, not American taxpayers, save them today. 

 

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The Inflationary Economics of the Black Death

The Black Death ravaged Europe, starting in Italy, in the middle of the 14th century. Substantial percentages of entire populations died---estimates range between thirty and sixty percent. Maybe 75 to 200 million people.

Would it have made any difference for overall living standards if Spain could have tapped on its subsequent influx of gold from Central and South America? That is, would the substantial increase in the money supply have somehow mitigated the adverse economic consequences of the plague?

The short answer: No. Production had declined because there weren’t as many people around to produce. More gold would be chasing fewer goods and services, a sure-fire recipe for inflation. Indeed, prices would have risen without the new gold, because the same amount of money would be chasing fewer goods and services. More gold would mean even higher prices. There is no evidence that inflation is a source of higher productivity, then or now.

The Spanish were the first bringing the gold to Europe. They would have been “first-spenders.” They, in effect, would be the beneficiary of what is called an “inflation tax on money” or “seigniorage.” This is how governments throughout history have been able to command resources by printing and spending new money.

In other words, the gold-influx redistributes claims over a shrunken economic pie from the rest of Europe to the Spanish. Sure, people would have had more money but the Black Death shrunk the pie, regardless of how much new money they have.

Enter a Virus

Jumping forward almost seven centuries, what parallels can we draw between the Black Death and the coronavirus? The fatality rates are obviously different, but that’s beyond the focus of what follows. The COVI-19 virus has resulted in production facilities being shut down, movement of people is restricted, and people are urged to “stay home.” This shrinks the economic pie. People aren’t dying, but because they’re not producing they’re "dead" economically.

Amazingly, the government’s response to the shrunken economic pie parallels my experiment with the Black Death. Like dogs returning to their vomit, government does what it does best: spend other peoples’ money for the supposed benefit of yet other people. Like the new gold, The Federal Reserve System floods the economy with new money and competition ensues to come up with spending boondoggles.

Oh, sure, handing out billions of dollars via various spending boondoggles ostensibly targeted at those hit hard by the decline in national income may give the impression of having avoided the cost. Ditto for having the Federal Reserve System flood the economy with new money.

No matter how you slice it, however, the pie is still smaller. That won’t change until production facilities reopen and people are allowed to move around. At best, the boondoggles and new money redistribute claims over the now smaller economic pie. They don’t avoid the cost of lost production.

The boondoggles do provide political cover for those enacting them. An electorate unschooled in economics falls for their hook, line, and sinker---seemingly every time. So it is with our government’s attempt to offset the consequences of shutting down economic activity. Lots of pomp and circumstance signifying nothing save the creation of yet more spending constituencies feeding at the public trough.

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The Crazed Trillion Dollar Coin Proposal is Back

03/23/2020Jeff Deist

Congresswoman Rashida Tlaib of Michigan has a big idea, almost Trumplike with a T.

Her proposal to save us from the Coronavirus and economic collapse involves giving every American $2,000 in a pre-loaded debit card, to be followed by additional $1,000 monthly recharges until the economy recovers (aka in perpetuity). This is simply a version of universal basic income schemes already proposed by many, and hardly noteworthy coming from a left-progressive. 

But her legislation has a big twist when it comes to funding it: trillion dollar coins!

Funding the Program

This is an old Paul Krugman idea from a few years back, and it effectively mimics the arguments of modern monetary theory supporters and old-fashioned Greenbackers: because the US federal government is sovereign, it can print (directly or indirectly) infinite amounts of money to pay its bills. Bankruptcy or insolvency is not an issue, and hey, why would anyone not want US dollars? 

In fact, why not mint twenty four $1 trillion coins and pay off the entire US Treasury debt today?

Notice the allure of the almost mystical platinum coins, presumably housed in a super cool safe somewhere at the Treasury Department or US Mint. We could even go visit them. like the Constitution! Even Krugman and Tlaib on some level understand the appeal of  "real" coins, in tangible physical form—and why the exact same scheme in purely digital execution would be a tougher sell politically. People still think of money in physical terms.

What will it take to get through to these knuckleheads that more money and credit does not mean more goods and services in the economy? That production precedes consumption? That incentives matter? Magical thinking will be the death of us.

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