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

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

09/24/2019Mises Institute

This issue contains selected lectures, papers, and abstracts of papers presented at the 2019 Austrian Economics Research Conference in Auburn, Alabama. Articles include Daniel Ajamian's "The Cost of the Enlightenment," Michael Rectenwald's "Libertarianism(s) versus Postmodernism and 'Social Justice' Ideology," Edward Fuller's "Keynes and the Ethics of Socialism," Jeffery Degner's "Family Formation, Fertility, and Failure: A Literature Review on Price Increases and Their Impact on the Family Institution," and more.

Available here.

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The Fed Sets the Tone for 2021

02/25/2021Robert Aro

The Federal Reserve set the tone for 2021 with the release of the year’s first Federal Open Market Committee (FOMC) meeting minutes last Wednesday. With the national debt approaching $28 trillion and covid still not eradicated, there appears to be no intention of ending accommodative policies any time soon. However, the Fed still has a way of never disappointing when it comes to what is discussed behind closed doors. As the minutes reveal, they found:

The emergence of a narrow Democratic majority in the Senate bolstered investor expectations for additional fiscal stimulus, prompting upward revisions to forecasts for economic growth this year.

This logic naïvely assumes a Republican-controlled Senate wouldn’t have the same or similar “additional fiscal stimulus” as the Democrats. It also assumes fiscal stimulus leads to economic growth. Should we continue along this train of thought, we may conclude that any Senate that favors perpetual fiscal stimulus is best since it creates perpetual growth!

We also see the usual Fedspeak, surprising only in its inventiveness:

The Committee’s employment and inflation objectives are generally complementary. However, under circumstances in which the Committee judges that the objectives are not complementary…

This is difficult because it falls back to the idea of a tradeoff between inflation and unemployment. Of course, the problem with this “theory” is that sometimes it works and sometimes it doesn’t. How such an inconsistent theory can ever be relied upon, much less used as a planning tool to form the Fed’s primary mandate, remains a mystery.

And for those unaware, the Fed undertakes desk surveys ahead of its FOMC meetings. The surveys are carried out by the New York Fed; they ask a variety of primary dealers, i.e., those firms able to trade directly with the Fed, questions. Then, a survey is conducted with market participants, comprised of institutional investment firms. According to their expert opinion:

The Desk survey results indicated that a majority of market participants anticipated that the pace of net asset purchases would remain stable for the remainder of the year and slow around the first quarter of 2022.

According to plan, the Fed will continue its $120 billion of asset purchases for twelve more months, meaning we can expect at least an extra $1.44 trillion of US Treasurys and mortgage-backed securities added to the balance sheet a year from now. This assumes there will be no more “additional fiscal stimulus” packages or any surprises which warrant the Fed to take on more forceful actions. The only thing more troubling than the best-case scenario of adding another trillion to the balance sheet is the erroneous widespread belief that the Fed will slow down its purchases ever again.

Last, but not least, the issue of inequality as it pertains to the black and Hispanic communities was addressed:

Many participants stressed that sustained support from fiscal policy would help address the hardships faced by these groups and that monetary policy could also help by promoting the economy's return to maximum employment and price stability.

Here they suggest that the solution to poverty and living in an unfair society revolves around asking politicians and central bankers to intervene even more in the lives of those in need. Naturally, this requires the bureaucracy to get paid for its interference. The public is then left to hope that planners will apply the appropriate amount of intervention, calculating the incalculable and doing whatever it takes to make society more prosperous.

Targets like “maximum employment” and “price stability,” are used, because they show that the Fed is goal oriented. The Fed will claim to fight racial inequality through their support, but their support can only amount to increasing the supply of money and credit, and deciding who gets access to this new money first. If these money creation schemes actually work, one would think the Fed’s goals would have been met by now. Can we really trust that by Q2 2022, as the survey says, the expansion will slow once the Fed finally hits its targets?

What the FOMC meeting ultimately fails to recognize is that by the time we get to March 2022 the only things to change will be the size of the Fed’s balance sheet, the money supply, and the increase in hardships faced by the very same groups the Fed is trying to help.

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No, There's No Reason to Feel Sorry for Robinhood

02/24/2021Ryan McMaken

As the dust settles following the GameStop frenzy in late January, it is clear that one of the biggest losers in the controversy in Robinhood. Robinhood is a trading app that markets itself as a platform for ordinary retail investors seeking to buy and sell securities without the cost of an expensive broker. Or, more romantically, Robinhood claims it has "democratized" investing.

But things didn't play out that way for the company. As buying of GameStop shares intensified in January 28, Robinhood (among other brokerages) halted the buying of GameStop (and some other shares, such as AMC) citing an inability to post sufficient collateral at clearinghouses. This is how a recent Forbes article summed it up

With the ability to easily buy more and more stocks using Robinhood’s app, the pile-on became a gold rush, as more speculators flooded to the platform to get “in” on the bounty. News about the booming GameStop and AMC stocks spread far and wide.

That’s where the trouble started.

Robinhood doesn’t directly execute customer trades.

Instead, it directs the transactions through a clearinghouse, which pays for the trades as the information it gleans lets it more effectively direct its own trading decisions.

Buyers and sellers are quickly matched digitally. However, the “settlement” of the trade—the actual transfer of payment and shares between parties—typically takes two days after the transaction. So clearinghouses require brokers, such as Robinhood, to have enough money on deposit to ensure that a trade can clear—even if the broker is waiting for a separate payment from a client to finish processing.

Given high demand for the shorted stocks and the climbing prices, Robinhood’s deposit requirements suddenly jumped ten-fold, according to a company blog post.

So Robinhood “put temporary buying restrictions in place on a small number of securities that the clearinghouses had raised their deposit requirements on.”

The fact that this move also helped billionaire short sellers at hedge funds was not lost on the general public, and the many immediately began to accuse Robinhood of intervening to help Wall Street oligarchs at the expense of ordinary investors. 

Was this the case? 

It doesn't matter all that much. What matters is that Robinhood was unable or unwilling to serve its customers in the way that Robinhood claimed it always would. 

According to Robinhood's narrative, its management had no other choice. And this has led some commentators to defend Robinhood, claiming that it was a victim of circumstance and it wasn't really conspiring against ordinary investors. 

But so what?

Even if Robinhood was being perfectly honest with everyone, the fact that it had to cut off its own customers from promised services reveals to us that Robinhood's management is at the very least incompetent and was unable to plan for future events which would have been anticipated by truly insightful or competent entrepreneurs. 

The company's ineptitude was showcased in a recent discussion between Rob Portnoy and Robinhood CEO Vlad Tenev. Tenev bragged that the company's block on further GameStop purchases meant "we were able to protect the firm." But Portnoy correctly pointed out that if "protecting the firm" means "screwing over" the customers, there's something very wrong going on over at Robinhood. We have a word for "protecting the firm" by harming customers. It's "exploitation," or "ripping people off." In response, Tenev threw out some bromides about how "if the market breaks down" they can't serve their customers. This assumes, of course, that letting investors buy what they want constitutes a "breakdown" in the marketplace. That's a rather bizarre assertion. Ultimately, even if we assume Robinhood was in no way conspiring against anyone, the fact remains that—as pointed out on CNBC—Robinhood put itself in a scenario it should not have put itself in. 

In other words, doing business with Robinhood now is an "enter at your own risk" sort of proposition. It's clear that in spite of all of Robinhood's claims about offering the everyman a way to participate in the markets, investors who do business with Robinhood can't trust that it will actually deliver the services it claims it will deliver.

That's as good a reason as any to forever ditch any company that acts with such ineptitude in giving the customer what he or she wants. 

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ACB's Betrayal of Trump Continues the Red Pilling of Conservative America

02/24/2021Tho Bishop

If we were searching for a reason for political optimism in 2021, we were delivered another reminder of the degree to which mainstream American conservatives are waking up to what the state truly is. The latest institutional betrayal of Republican voters came from the Supreme Court, which rejected considering a lawsuit challenging late changes to Pennsylvania’s election process. The majority that voted to dismiss consideration included Trump nominees Brett Kavanaugh and Amy Coney Barrett.

Are Notorious ACB shirts getting treated like the jerseys of an athlete who just jilted a fanbase?

This was predictable, of course. Not because there wasn't a substantive issue worth addressing: the degree to which state courts can interject themselves in election law seems like a valid question—regardless of one’s opinion about the 2020 election. As Justice Clarence Thomas noted in a particularly blunt dissent, this was simply the SCOTUS avoiding the issue entirely:

That decision to rewrite the rules seems to have affected too few ballots to change the outcome of any federal election. But that may not be the case in the future. These cases provide us with an ideal opportunity to address just what authority non-legislative officials have to set election rules, and to do so well before the next election cycle. The refusal to do so is inexplicable.

Of course, this is precisely the sort of behavior that we have come to expect from spineless politicians, and that is what you find on America's highest court—politicians in robes. While it’s become more fashionable lately to mention this in recent years thanks to the particularly hammy performance of John Roberts, this has long been the case.

As Ryan McMaken has explained:

The truly political nature of the court is well documented. Its politics can take many forms. For an example of its role in political patronage, we need look no further than Earl Warren, a one-time candidate for president and governor of California, who was appointed to the court by Dwight Eisenhower. It is widely accepted that Warren’s appointment was payback for Warren’s non-opposition to Eisenhower’s nomination at the 1952 Republican convention. The proposition that Warren somehow transformed from politician to Deep Thinker after his appointment is unconvincing at best. Or we might point to the famous “switch in time that saved nine[,]” in which Justice Owen Roberts completely reversed his legal position on the New Deal in response to political threats from the Franklin Roosevelt administration. Indeed, Supreme Court justices are politicians, who behave in the manner Public Choice theory tells us they should. They seek to preserve and expand their own power.

The court, jealous of its power, and reluctant to hand down decisions that might actually cause the court to lose prestige, is at times careful to reflect the majority opinion regardless of how atrocious it might be. To see this, we need look no further than Korematsu v. United States[,] in which the court declared it perfectly legal to round up American citizens and throw them into concentration camps.

The court forever plays a careful balancing act with both the public and with other branches of the federal government in which i[t] continually pushes the bounds of federal power without rocking the boat to the point of calling its legitimacy into question among the majority of the population. Naturally, Congress and the presidency, themselves committed to untrammeled federal power, have no problem with most of this on most occasions, except perhaps in the details.

It is the last paragraph that brings us to this week’s decision. Regardless of the merits of the argument, there can be no tolerance for any major institution that invites questions over the legitimacy of the 2020 election in Joe Biden’s Americans. Particularly not one that resides in the current war zone of the American capital.

Already there are agents of the corporate press trying to spin Justice Thomas’s dissent as an act of sedition. I would be surprised if no Democrat ends up calling for his impeachment over the issue.

In terms of the incentive for a justice to build up their own prestige, none had more to gain from ruling against Florida’s first president than Kavanaugh and Barrett. Kavanaugh’s lack of principles has long been obvious to anyone who followed his career in the Bush administration. It is a testament to the repulsive treatment he received from the corporate press that they managed to make a Yale Law alum turned Beltway lawyer sympathetic.

It is also understandable to see how both could be convinced that this decision was a practical necessity for their historical reputations. In the view of America’s most powerful institutions, there is no greater stain than having Trump as a benefactor. The only way to be forgiven for this sin is to become politically useful in stopping him. With this case, the last legal challenge of 2020 is likely done.

This is yet another example of the unique value of Trump’s presidency. The failure of a conservative-aligned Supreme Court to defend Donald Trump is being properly recognized by many Americans as showing that it also cannot be trusted to defend them. Many who believed that a “conservative legal movement” could effectively defend the Constitution in DC—if only Republicans could get a true majority!—have now lost their innocence.

This invites an important question: What happens when yet another governing institution loses the faith of a large portion of the American public? While Congress has long been viewed as dysfunctional and the popularity of the presidency has largely been partisan, the Supreme Court has tended to be held up as a uniquely noble governing body. Now, we see its legitimacy questioned with increased frequency on both the left and right.

While this may be a bitter red pill for some to swallow, ultimately it is necessary medicine.

The growth of the American empire has always been dependent upon convincing the public that it is acting in its interest. When large portions of the population begin to recognize that this is an obvious lie, that the empire ultimately serves the interests of a privileged few, governing becomes more difficult. As Jefferson noted, the first step to opposing imperial rule is for people to recognize that they no longer consent to a government that is hostile to their lives, liberty, and pursuit of happiness.

In America today, there are 50 million+ Trump supporters who believe Joe Biden is a president imposed on the nation—potentially with the help of foreign powers—armed with a Democrat-controlled legislature and a Supreme Court whose credibility is now compromised.

Yet another reason why secession is becoming popular.

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Professor Philipp Bagus on the "Political Economy" of Covid Hysteria

02/24/2021Jeff Deist

Professor Philipp Bagus has published a remarkable article making the case for developing a political economy to help us understand the 2020 coronavirus and similar events prone to mass hysteria.

The article, titled "COVID-19 and the Political Economy of Mass Hysteria,"1 appears in the International Journal of Environmental Research and Public Health. Happily, it is available online in full from the Swiss outfit MDPI (which is committed to open access scholarly publishing in the face of lingering and absurd twentieth-century paywalls for most academic journals). Bagus, along with coauthors José Antonio Peña-Ramos and Antonio Sánchez-Bayón, argue that digital media effectively boosts and weaponizes information provided by authoritative state sources in times of crisis.

The invocation of "public health" tends to suspend the public's capacity for disbelief; after all, who wants to be sickened by an illness which respects no borders or strata of society? And why would politicians or media figures lie about a strange new virus emanating from China? It also tends to suspend the public's objections to plainly illegal or dubious extralegal measures, such as business closures and school shutdowns. It makes us forget about tradeoffs and alternatives, at least temporarily, because life, or at least our health, is at stake. This is especially true in the early months of a crisis, what we might call the "fog of war."

But as Bagus and company make clear, political and economic realities do not magically vanish during a pandemic. In fact, the enduring tensions between economics and politics loom ever larger when states take aggressive steps to keep citizens at home and substitute fiscal or monetary stimulus for economic activity. Public health and the broader welfare state—especially public healthcare systems—cannot be neatly separated. And the bigger the government, the more profound the magnitude of policy errors. Politicians, per Hans-Hermann Hoppe, have an everlasting tendency to think short term by their very nature. And they are at their worst when emergency powers are seized from a willing public uninterested in legislative processes.

Bagus's framework for the political economy of covid emerges when we begin to understand the politics and the economics realistically and in tandem. Mass hysteria imposes tremendous costs across society, both in human and economic terms. Tradeoffs cannot be avoided, even if they are not much discussed in popular media. Alcoholism, suicides, untreated illness, and vast psychological harms all must be considered in addition to the staggering and almost unknowable financial costs of lockdowns. Hysteria makes it all worse. The paper identifies political institutions, politicians themselves, and media actors as having colluded to intensify the degree of hysteria in society over covid during the past year:

  • States banned or limited activities like dining, sports, and socializing;
  • States approached the perceived threat from the virus in a centralized way;
  • Heavily politicized and state-licensed media tended to promote viewpoints provided by government officials;
  • Negative news stories were bolstered when provided by seemingly authoritative public health officials;
  • Politicians may well haved benefited by instilling fear in the population; and
  • Politicians had every incentive to overstate the threat of the virus, as they don't bear the costs

The close nexus between political actors and dominant media platforms creates a ripe environment for covid hysteria simply because the incentives and tools are so suited to it. As the authors put it:

Self-interested politicians face an asymmetric pay-off. Underestimating a threat and failing to act has great political cost, as politicians will be held responsible for the disaster caused by the threat they underestimated. By contrast, an exaggeration or even invention of a threat and bold state intervention are politically more attractive. If the existential threat claimed by politicians really turns out to be such a great danger, they can be celebrated as heroes if they enacted bold measures. If the costs of these measures ultimately turn out to be excessive compared to the actual danger, then the politicians do not have to bear the cost of the wrong decision but can pass it on to the rest of the population. Politicians enjoying a guaranteed income therefore have an incentive to exaggerate a danger and to impose exaggerated measures, also called policy overreaction, which is conducive to the emergence and growth of mass hysteria.

In sum, property rights tend not to be effective limits in curbing mass hysteria in a welfare state. Moreover, the state may inhibit the natural mechanisms that reduce stress and hysteria. The centralized nature of the state increases group and conformity pressures. Politicized mass media and negative messages from official state agencies can further increase psychological pressure. Finally, the state may intentionally want to increase anxiety, and politicians have the incentive to make bold decisions and exaggerate the threat.

Big government and big media go hand in hand, hence the public overreaction to covid. After all, collectives by their very nature do not allow for a variety of viewpoints or approaches to problems. Bagus and his coauthors have given us a wonderful and original exposition, a new way of looking at Edward Bernay's old concept of "manufacturing consent." They have also given us the solution: market incentives, property rights, and decentralized mechanisms for discovery. Top-down statecraft cannot produce competition for solutions, but instead acts as a blunt and inefficient instrument of bad policy.

Or as the authors state, "there exist important limits for a mass hysteria to harm life and liberty in a minimal state."

  • 1. Philipp Bagus, José Antonio Peña-Ramos, and Antonio Sánchez-Bayón, "COVID-19 and the Political Economy of Mass Hysteria," International Journal of Environmental Research and Public Health 18, no. 4 (2021): 1376, https://doi.org/10.3390/ijerph18041376.
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Pennsylvania's Centrally Planned Vaccine Plan

Pennsylvania’s Acting Secretary of Health Alison Beam said in a press release on February 12 https://www.media.pa.gov/pages/health-details.aspx?newsid=1292 that only four groups are allowed to handle distribution of Covid-19 vaccines going forward: hospitals, federally qualified health centers, county health departments, and pharmacies in effect shutting out primary care doctors from Covid-19 vaccine distribution.  In response, the Pennsylvania Academy of Family Physicians, Pennsylvania Osteopathic Medical Society, and the Pennsylvania Chapter of the American College of Physicians (physician group) collectively expressed disappointment in the Acting Secretary of Health’s misguided allocation changes to the state’s COVID-19 vaccination distribution plan, removing primary care providers from the list of those permitted to administer the COVID-19 vaccine

Their press release states:

Without sound justification and demonstrating a lack of understanding in the way most Pennsylvanians receive their health care, the Administration is making a woeful mistake by cutting out primary care physicians as eligible providers.

Justifying her action acting Secretary Beam said.

“As there is very limited COVID-19 vaccine supply compared to demand, every possible effort must be made so that the vaccine received in the commonwealth is effectively administered. To achieve this goal, I am issuing an order outlining appropriate steps and recognized best practices to ensure vaccine providers are effectively meeting the goal of vaccinating Pennsylvanians and creating a healthy Pennsylvania for all.”

While acting health secretary Beam’s intention of making use of every dose of the Covid-19 vaccine is commendable, what is so puzzling about this decision is the inconvenient fact that one of the most successful vaccine rollout by percent of people vaccinated is in the neighboring state of West Virginia.  West Virginia, a small and mostly rural state with a large elderly population, quite similar to Pennsylvania in many aspects, showed how to roll out Covid-19 vaccinations successfully. West Virginia is now being hailed as a vaccination success story, with 85 percent of its delivered doses already used, according to data from the Centers for Disease Control and Prevention, putting it second in the country behind North Dakota.  A key part of the strategy in West Virginia was the decision not to activate a federal partnership with pharmacy chains and instead relying on independent drugstores

Dr. Clay Marsh, West Virginia's coronavirus czar and vice president and executive dean of health services at West Virginia University may have read some articles from the Mises Institute when he states “But we absolutely rely on the creativity and the innovation of all of our people. Because we don't want to rely on external resource requirements for us to be able to do what we need to do.” 

Primary care physicians have plenty of experience administrating immunizations across a wide range of age groups.  They are in the business of connecting and caring for people at the local level on a daily basis.  They are best equipped to pull up a list of patients who qualify for the Covid-19 vaccine at each phase of the rollout.  But with the new order by the acting health secretary Beam, primary care physicians are being sidelined.  West Virginia has shown that good personal contact is key to the whole effort.  Most people in rural areas would rather get vaccinated by their doctor that they know and trust than by large impersonal semi-governmental vaccination centers.  According to the Pennsylvania Department of Health the list of approved vaccination sites will shrink from about 780 providers statewide to only 200 to 300 that will continue receiving doses from the state. 

In their press release the physician groups conclude:

Many people will turn to their primary care physician for guidance as to whether they should get the vaccine. Physicians, nurses, and physician assistants who provide care in private practices are trusted by their patients. This is especially noteworthy when considering those patients who may otherwise be reluctant to get the vaccine. A pharmacist or other provider who is unknown to the patient will not be able to provide that same level of confidence. Additionally, many older Pennsylvanians may believe that they will receive the vaccine in their primary care physician’s office. The new order creates yet another hurdle for a demographic who is already struggling with navigating the vaccine distribution landscape.

A main reason and good reason for the change in policy is to ensure all vaccine doses provided are administered and not wasted.  However, on February 17th acting health secretary Beam had to address a major vaccine snafu when COVID-19 vaccinations for up to 115,000 Pennsylvanians have to be rescheduled. According to Beam, the Moderna vaccine was inadvertently administered as the first of the required two shots when the serum was earmarked for the second shot instead.  Pharmacies often don’t have more than a day’s notice about shipments, which complicates scheduling people for vaccinations.  Each vial of the Moderna vaccine has 10 doses, and once the vial is open, the vaccine lasts only five hours. After five hours the vaccine has to be discarded, only a minority of primary care physicians can manage the logistical challenges of such a strict timeline.

Another reason for the change by acting health secretary Beam and an order by Governor Wolf is to expedite the rollout.  Pennsylvania’s COVID-19 vaccine program has been marred by glitches from the start.  It has been criticized over how fast its allocated shipments are administered ranking Pennsylvania in the middle while West Virginia ranks third according to the New York Times tracker.  

The glitches in the vaccine rollout in Pennsylvania are even more troublesome by the fact that President-elect Joe Biden tapped Pennsylvania Health Secretary Dr. Rachel Levine to be his assistant secretary of health in the U.S. Department of Health and Human Services.  Dr. Levine was in charge of the Covid-19 response in Pennsylvania and Pennsylvania is now trying to untangle its botched vaccine rollout under her leadership.  What can the rest of the country expect once Dr. Levine is in charge of a larger rollout?  

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Lockdowns Destroyed the Democracy of the Marketplace

"We're closed."

These are terrible words to see in front of your favorite small shops and services when you are in the mood to purchase something you desire, or ready to pay for something you wish to avail of. This feeling is made even worse emotionally when you know the closures are forced and permanent, and that you sadly and ultimately could not do anything about it.

It may not be the case that these businesses were bad and died a natural death, and may in fact be quite the contrary. You are probably a dedicated customer, and one among many that happily voted to keep those enterprises running by paying for what they offered, because you and others genuinely liked them. These businesses could have thrived under normal circumstances.

However, when a business was one of the casualties of regulations that limited its ability to operate, and when you were forced to stay at home and became unable to spend on it as often as before, you were essentially denied the ability to vote for its continued existence.

A diverse and plentiful number of micro, small and medium enterprises makes up the bulk of any healthy economy. It is normal to see that such entities comprise the vast majority of business activities in countries around the world. The economy has to thrive at different levels to cater to the tastes and needs of people from all walks of life. This natural phenomenon has been demonstrated consistently over the course of human history.

These days, the depressing news that hits consumers around the world is that of the mass closure of smaller businesses. These would be last seen offering final services that could not even be given fully due to limitations imposed upon them. These are the stores that found themselves severely hampered by the policies governing the economy created in the wake of the pandemic, through no fault of their own. While some undoubtedly survived by adapting to circumstances, as competent entrepreneurial entities should, many did not.

If a business is limited, for example, to only be able to serve an arbitrarily small number of customers at any given time, how can it hope to get by as it normally would? Yet such limitations exist around the world, decreed in the name of stopping the spread of COVID-19. For example, shops that used to be able to tend to twenty customers at once could have had their maximum number of potential clients reduced to just five at a time.

What this does in practice for countries with large populations is that customers would sometimes have to line up outside shops or gather in large crowds for a long time anyway due to space limitations. In that case, was the objective of the policy, presumably to create social distancing, successfully met? That said, these cases are supposed to be the lucky ones. Some businesses could not even reopen at all due to other such restrictions that worked unfavorably against them.

Disasters and market fluctuations happen, sure, and these sometimes trigger the closure and death of certain businesses. Risk and uncertainty are always integral parts of lived experiences, and we make decisions and judgements based on our perception of them. But the very problem posed here is that closures enabled through harsh restrictions could have been avoided entirely. Some business deaths were preventable, and it would be a disservice to simply blame everything on the pandemic.

In these times, where consumers are stuck at home and unable to spend on the goods and services they would otherwise like to avail of, people are essentially barred from the democracy of markets. On the consumer side, it has become difficult to patronize favorite businesses as in pre-pandemic times. On the producer side, it has also become difficult to provide goods and services in a way that allows for continued and efficient operations in a “pandemic market”.

With many small businesses tragically and irreversibly gone —and more to follow suit as countries continue to scramble to get their acts together— we need to create a healthy and competitive global economy. We should start by remembering the importance of enabling market democracy.

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The Failure of Britain's Railway "Privatization"

02/23/2021Paulo Ferreira

It is no surprise to the daily English commuter that British Railway has always fallen short of providing adequate services to it’s customers. Dissatisfaction is at an all-time high, with high ticket fares and poor timing schedules. Rail user satisfaction at 10-year low. To avoid bankruptcy, the state provides subsidies and security bonds to prevent job losses – albeit bonds incur debt that will have to be paid off - and there has been a conscious effort on successive governments in terms of pushing up ticket fares, so that the burden of taxation does not fall entirely on the taxpayer.

This disaster is the offspring of the botched "privatization" of rail which has since evolved into a monopoly of the railway system in Britain. Privatization is only effective if there are other players on the market competing against each other—or at least the possibility of entry for other firms into the market. This helps to keep prices down as the possibility of competition drives providers to better serve customer needs and wants.

With the introduction of the 1993 Railway Act, the Conservative government at the time initiated the privatization of rail by establishing Railtrack, becoming the sole owner of infrastructure in the entire country, laying out the rules for train operating companies. Train companies – national or international – would own and deploy various rail franchises. Rolling stock operating companies provide the necessary locomotives, and freight operating companies, whose primary responsibilities include transporting cargo across the national network.

The main problem holding the industry back however is the lack of competitive infrastructure, for not only does a geographic monopoly exist, but also an overly complex, fragmented system interdependent on a myriad of factors, a tight, bureaucratic labyrinth that drowns out competition. All signals, levels crossings, bridges and tunnels are held on a leash by the Leviathan of rapid transit: Network Rail – the successor to the unsuccessful Railtrack - a public company answerable to the Department for Transport, financing and maintaining the rail tracks by redirecting profits and dividends earned during the year for reinvestment. Strictly speaking, despite privatization, the state reversed their decision and have a final say on how British tracks should be run. The dictum “meet the new owners, same as the old ones” can justly be applied here.

Trains in less dense routes and stations are split into various rail franchises, beginning with a private company placing a bid to secure contracts that allow them to operate on specific routes, as stipulated by the contracts complying with public law regulations. The government takes into consideration each candidate in terms of which company can provide the best passenger satisfaction, as well as optimistic projections of future revenue. The winner, before being awarded the contract, must pay a premium to the government and the projections forecast for the future also increases the premium. Each area has different routes and varying government specifications laying out the ground rules, including train services and station upgrades. However, many of these contracts end up becoming unprofitable due to a lack of demand in certain regions of the country, and private companies owning the rail franchises default, being liquidated as a result. In areas of a less dense population, local monopolies are born, giving the companies a bargaining chip on the region.

It should be noted that various foreign governments dominate several UK rail franchises. For example, Deutsch Bahn (the franchises in question include Arriva Trains Wales, Chiltern Railways, CrossCountry, Grand Central and Northern) is financed by the German government, being the sole shareholder. Therefore, should they cut their investment on Deutsch Bahn would have the detrimental consequence of cutting down the number of trains available for usage to the British public. Other foreign governments too own majority stakes in railway companies, owning nearly all rail franchises in the UK.

Before privatization, economic liberal think tanks such as The Centre for Policy Studies and the Adam Smith institute put forward several proposals. The one eventually adopted by the Conservatives was the one put forward by the Adam Smith institute: different companies running trains. It would have been wiser had the State instead decided to heed the advice put forward by the Centre for Policy Studies, proposing that Britain should go back to the Victorian era structure of a dozen private companies controlling railway.

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Deregulate the Policing Market

Priti Patel (the UK secretary of state, akin to the US’s attorney general but with a much wider purview) has been recently considering new laws to tackle a spate of dog thefts across the country. The crime wave has been spurred by lockdown measures, with many people desiring “covid pets.”

This increase in demand for pets, especially dogs and puppies, has led to an increase in prices, with some puppies now costing as much as £1,883. Most Austrian economists will not be surprised that the “the bureaucracy is expanding to meet the needs of the expanding bureaucracy” but where a problem is presented that seemingly needs a solution, what else is to be done?

In this case it’s existing regulation (prelockdown) that is causing the most major problems for this not to be a state issue. It's about crime and how it pays. According to the most recent data (as of July 2019), only 7.8 percent of all reported crimes in England and Wales end in a conviction.

The usual calls when this happens are for more police to be dropped on the streets, as if this were some God Simulator computer game where spawning enough units eventually gets the job done while the economy shuffles on certis paribus. But this is the real world, and the economic constraints of resources, funding, training times, and acquiring competent applicants exist.

So what is the alternative? Deregulate the policing market. Why should we leave a government monopolist police to concentrate on petty theft and dog napping when rape convictions are at their lowest point ever? Private police forces already exist in the UK, mostly in response to state budget cuts (another argument against monopoly is that the state’s ability to “giveth and taketh away” on a whim often does not correspond to local demand).

However, the role of private police forces needs to have the support of the home secretary in regard to jurisdiction. This became the issue with the port authorities (who have had private police in the UK since the 1840s). Delivering criminals from the port to custody meant breaching a “mile radius” zone of jurisdiction and so making it illegal to bring a criminal to justice! Luckily the powers of the constable were increased to ensure this was legal.

Private policing, being nothing new, adds a whole host of benefits to the area of policing as well, including increased conviction rates and reduced costs. There are opportunities for communities to have their own police from their own backgrounds (the UK police are still not trying to understand why young black men won’t join the Met [Metropolitan Police] or why nationalists won’t trust the PSNI [Police Service of Northern Ireland]).

The state police are needed at the moment to deal with serious crimes: rape, murder, child grooming, and abuse. These serious damages to person are in a rational society detestable, and no one, excepting the most lunatic fringes of liberal academia, would want to see their perpetrators roaming the streets. Whether these are sent for treatment or punishment is another debate, but their exclusion from society is accepted by most.

So let’s give the private police a chance to prove that this is a market that can not only reduce the government’s time and money, but can have an exponential amount of positive externalities. We can begin to let people trust their own police, run by them for their community, in accordance with the laws of the land, of course. This is not a call for miniwarlords, just a way for the market to prove its efficiencies over the state.

It’s unlikely, given the new Tory (see Labour) method of tax and spend that an actually viable, free market solution will be picked up. However, getting this conversation started and offering solutions that are more than just “stop and search” or “hug a hoodie” is important. We must look to all the options before our police force is given powers they don’t need to fight crimes that are none of their concern or dwindle into a restricted, powerless force that simply protects the wealthy and is mistrusted by everyone else.

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CNBC Does Black History Month

02/23/2021Robert Aro

As a black man, this bothers me, and I hope anyone who loves freedom and liberty feels the same.

Last week, in celebration of Black History Month CNBC continued with its “Invest in You” series:

featuring weekly stories from CNBC contributors and members of the Financial Wellness Council, including the lessons they’ve learned growing up, their advice to Black youth, their inspirations and how they are working to close the racial wealth gap.

The definition of the “racial wealth gap” is not provided, but they share a stat from a Federal Reserve study to provide an idea:

The median wealth for a White family was $188,200 in 2019, compared to $24,100 for Black families and $36,100 for Hispanic families.

No one can reasonably say what median wealth should be. However, we can say the median wealth of white families is many more times the median wealth of black families. We are offered solutions as to how to bridge the gap, recommended by several African Americans, presumably experts, whose opinion we should listen to because they are either famous or rich:

Quoting Akbar Gbajabiamila, former NFL Player turned cohost of American Ninja Warrior, who believes financial literacy can help lessen the gap. His solution is:

People in power need to step up and help open up financial advising for everyone.

Higher up the wealth bracket we hear from the first black billionaire, Robert Johnson, who sold Black Entertainment Television (BET) in 2001. He believes powerful business people should be called upon to help black Americans advance. It’s unclear if he means powerful blacks or all powerful people. Either way, the successful people “achieved their success by having opportunity.” He goes on to say that these powerful people should tell black Americans:

“We’re gonna give you equal opportunity that we had, we’re gonna give you access to capital that we had, and we’re gonna ensure that you have a chance and a fair shot at participating in the American dream.”

There were even more people who weighed in on the issue. But the flavor of the article should be apparent by now. Time after time, whether from the mainstream media, politicians, or central bankers, we are told that the answer to our economic problems is for those in power to simply take the right action to help those in need. According to the quote above, if powerful people simply decided to grant more opportunities to those in need, it would allow the marginalized to get their fair shot, therefore achieving The American Dream…

Unfortunately, the opportunity to provide something useful to the black community and anyone else experiencing hardship is lost on CNBC. When we talk of opportunity, many forget it is the government and their central banks that are at the forefront of limiting our ability to succeed. Consider the effect of regulations, free market intervention, and inflationism and refraining from them would help better close this gap between all races.

Regulations. The list is long: the war on drugs, prohibitions on selling goods and/or services, import tariffs, minimum wage laws… to name a few. There are countless rules which govern our lives. Yet these rules are involuntary restrictions placed by the powerful over the masses. Society could find positive economic outcomes if we simply removed laws which limit economic freedom.

Interventionism. Remember, it is the Fed that creates over $100 billion a month to buy government debt, tinkers with interest rates, and creates special programs to assist certain members of society at the expense of other members of society. The powerful tell us these programs are for our own good and that if it weren’t for them society would be much worse.

Inflationism. The long-standing fallacy of money creation for the purpose of wealth creation. However, the same money supply expansion benefits the most powerful members of society first. Ironic how so many people turn to those same powerful people for help when their priority is to preserve their own advantages.

This month, many were given a chance to talk about issues facing African Americans. Sadly, without understanding ideas of liberty and freedom, those who would benefit most from capitalism will continually seek socialism. When most people talk about opportunity, it’s often in the context of getting a handout or a leg up from another. Perhaps the best opportunity is to not limit someone’s opportunity from the start.

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Poll Finds 50% of Southern Republicans Now Support Secession

02/19/2021Tho Bishop

For several years now discussion of secession has become increasingly mainstream. A new poll highlights regional and partisan views on the topic.

Bright Line Watch asked Americans whether they would support their state seceding from the United State and joining a union with regional states. The question outlined the new unions as follows:

  • Pacific: California, Washington, Oregon, Hawaii, and Alaska
  • Mountain: Idaho, Montana, Wyoming, Utah, Colorado, Nevada, Arizona, and New Mexico
  • South: Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Georgia, Florida, South Carolina, North Carolina, Virginia, Kentucky, and Tennessee
  • Heartland: Michigan, Ohio, West Virginia, Illinois, Indiana, Minnesota, Wisconsin, Iowa, Missouri, North Dakota, South Dakota, Kansas, and Nebraska
  • Northeast: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Maryland, Delaware, and the District of Columbia

Support for secession was highest in the South and West, both at 33 percent, followed by the Northeast (32 percent), the Mountain region (28 percent), and the Heartland (24 percent).

Bright Line Watch’s analysis highlighted the degree to which shared political behavior correlated with higher support:

Support also corresponds with regional partisan context. In the Pacific and Northeast regions, both of which are deep blue and could be expected to be dominated by the Democratic Party (or its post-secession descendants), Democrats favor secession most, followed by independents and Republicans. In the deep red Mountain and Southern regions, that pattern is reversed with Republicans most amenable to secession. In the Heartland, a collection of mostly red states that also includes purple Michigan, Minnesota, and Wisconsin, independents are the group most inclined toward secession.

The unwillingness of respondents to reject secession outright is widespread and context-dependent. Republicans express greater support for secession overall than Democrats, but Democrats are more amenable to secession than are Republicans in regions they dominate.

The Americans most likely to support secession were Southern Republicans at 50 percent. Below is a graphical representation of the responses:

Given that a majority of Republican voters do not believe Joe Biden was a legitimately elected president, it will be interesting to see how these sentiments develop over the next few years. 

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