Trump's Corny New Farm Bailout May Ruin Your Car

Trump's Corny New Farm Bailout May Ruin Your Car

10/09/2018Tho Bishop

This week the Trump administration announced it will giving a major gift to American corn farmers by expanding the sale of ethanol in the US.

As Eric Wolff of Politico reports:

Trump, a vocal supporter of corn ethanol, will order EPA to allow year-round sales of gasoline with 15 percent ethanol content, an increase over the 10 percent blends that are sold at most gas stations around the nation. The sale of the blends, known as "E15," is currently prohibited during the summer months in several states because of Clean Air Act restrictions, and corn growers have long sought to expand sales of the higher concentrations.

"This is a big deal," said Jeff Navin, a Democratic former aide to ex-Senate Majority Leader Tom Daschle of South Dakota and former chief of staff in the Obama administration's Energy Department. "It's not something that makes a front page of East and West Coast newspapers, but it's something that farmers watch closely. I’m sure the political team and elected officials in Iowa told [Trump] he has to do something to staunch bleeding."

The “bleeding” in this case is the hit the farm industry has taken as a result of Trump’s trade policies. While last week’s agreements with Mexico and Canada offered Trump “winning” headlines, the changes to NAFTA will do little to offset the hit farmers have taken as a result of the administration's antagonistic approach to China and other foreign markets. The timing, a month away from mid-terms, is likely not a coincidence as Trump seeks to bolster his standing with one of his key bases of support in 2016.

Though the legality of the EPA’s waiver is likely to be challenged by Big Oil, this move is a major victory for ethanol special interest groups. As Emily Skor, the CEO of a prominent ethanol trade association, boasted after the announcement:

We’re very excited to hear the president’s upcoming announcement. He knows farmers are hurting and they want action on E15 in time for the next summer driving season. Year-round sales of E15 nationwide could deliver demand for two billion bushels of American corn and help restore growth in rural communities.

Unfortunately this win for farmers is another example of how the public are the ones that inevitably pay the cost for Trump’s trade battles.

First of all, ethanol never made much sense as a form of fuel. It’s “success” was a direct result of political subsidies – in no small part aided by Iowa’s coveted position as the first presidential contest every four years. For years the industry was reliant upon tax credits that made the price of ethanol profitable. Even though those tax credits were finally allowed to expire in 2012, ethanol has continued to be propped up due to the EPA’s Renewable Fuel Standards. As the name suggests, the Bush-era policy is a mandate that fuel sold in the United States much contain a certain percentage of “renewable fuel.” In the words of Aaron Smith of AEI, “Removing the tax credit but keeping the RFS is like scraping a little frosting from the ethanol-boondoggle cake.”

The result has been government-driven demand for corn-based ethanol. The consequences of this policy include rising food prices, as it not only directly drives up the price of corn but also incentivizes farmers to grow corn at the expense of other crops.

As Randy Holcombe tried to calculate the costs for tax payers in a 2015 Mises Wire article:

The U.S. Department of Agriculture says in 2011 the total value of the corn crop was $63.9 billion, and that there were 400,000 corn farms in the United States. Because the price of corn has doubled due to the mandate, half of that revenue, or $31.95 billion, is a transfer from consumers to corn farmers in the form of higher prices.

Dividing that $31.95 billion cost among 319 million Americans, the cost to each American from the ethanol mandate is just about $100 a year. That includes not only the price of ethanol, but the higher price of corn in all its other uses.

That $31.95 billion is shared among the 400,000 corn farmers, so the average benefit to each farmer is $79,875.

Of course, there is another downside to government ethanol mandates – it’s not particularly good for automobiles.

As Eric Peters noted earlier this year:

The reason the ethanol content of mainstream “gas” has so far been limited to 10 percent is because higher ethanol content will damage engines (and fuel storage/delivery systems) not specifically designed to handle it. The stuff accelerates rusting of gas tanks and fuel lines and can damage rubber seals and gaskets not designed to withstand it – the latter potentially leading to fuel leaks and fires....

Very few cars of any vintage – including most new/recent-model cars – are designed to handle “gas” that is more than 10 percent ethanol. Owners of these vehicles are specifically warned not to use “gas” with more than 10 percent ethanol unless specifically told it’s okay. Advised that using more than E10 if not specifically okay’d will void the warranty and leave them holding the bag for any damage done to the engine and related components, such as the fuel tank, fuel pump and fuel lines.

So here we have a great illustration of the heavy hand of government at work:

  • Government hurts farmers by increasing the cost of doing business overseas.
  • Government creates a new government policy to help farmers.
  • Costs of the policy are passed on to consumers, with the added collateral damage of hurting our cars.

“I’m from the government and I’m here to help.”

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The Fed Has No Escape Plan

08/03/2020Robert Aro

Fed Chair Powell would shock the world if he said something like this:

The Federal Reserve’s response to this crisis has been guided by our mandate to promote maximum employment and stable prices, along with our responsibilities to promote the stability of the financial system. The problem is that these are misguided policies made by my predecessors. Maximum employment is just an arbitrary number made up by economists. There is nothing stable about prices that are expected to increase by 2% year over year. A stable financial system cannot happen when a central bank manipulates interest rates and controls the money supply…

Unfortunately, he has never said anything like this, although he would be correct if he did. But we can dream! Would the world not be a better place if he had?

Instead, the Chair said little that was honest or interesting in his most recent press conference. He plans on keeping rates low while continually increasing the money supply in order to inflate away the US dollar. The crisis is different, but the response remains the same. Actions taken by the Fed must be swift but also temporary. The takeaway is that there is nothing more permanent than a temporary solution.

As far as the trillion dollar temporary lending facilities are concerned, in the Q & A , Powell answered:

So I wouldn’t look for us to be sending signals about cutting back on facilities or anything like that for a very long time. We’re in this until we’re well through it.

This was confirmed by a press release during the week which noted :

The Federal Reserve Board on Tuesday announced an extension through December 31 of its lending facilities that were scheduled to expire on or around September 30.

Not only were the lending facilities extended but :

The Federal Reserve on Wednesday announced the extensions of its temporary U.S. dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities (FIMA repo facility) through March 31, 2021.

Between lending facilities, swap lines to foreign central banks, and repurchase agreements for “monetary facilities” outside of the United States, we get a clear understanding about how things truly work at the Fed.

The press conference itself gave more expected fluff, in one breath Powell said the usual concern for the disenfranchised:

In particular, the rise in joblessness has been especially severe for lower-wage workers, for women, and for African Americans and Hispanics. This reversal of economic fortune has upended many lives and created great uncertainty about the future.

It’s interesting because he acknowledges a problem exists, but then does everything he can in order exacerbate the problem by continuing inflationary wealth-destroying policies. He even goes so far as saying in the Q & A that congress appropriated $454 billion for the Fed’s facilities, pretending to not be aware this money is borne by the entire nation, especially those “lower-wage workers” and the disenfranchised.

The top economists in the world continue to be dead-set on a dual mandate which postulates a trade off between “inflation” and “unemployment,” while their beliefs require them to continually lower the interest rate and money supply in hopes of creating economic recovery. Ironically, these policies do the exact opposite of what they are intended. But the effects become more pernicious when we realize the Fed is at a stage where they cannot go back. While they won’t admit, the balance sheet cannot be reduced anymore than these temporary facilities can actually be made temporary. Never have we seen a central bank successfully reverse course, whether it’s interest rates, balance sheet, or asset purchases including bonds and stocks. The Fed is no different.

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Economic Regulation Means Government Picks Winners and Losers

08/03/2020Per Bylund

There is severe confusion about the meaning of economic growth. Many seem to mistakenly think that it has to do with GDP or producing stuff. It does not. Economic growth means that an economy's ability to satisfy people's wants, whatever they are—that is, to produce well-being—increases.

GDP is a rather terrible way of capturing this using (public) statistics and is corrupted by those benefitting from corrupting such figures. GDP is not growth.

Likewise, having more stuff in stores isn't growth. Producing increasing quantities of stuff that nobody is willing to buy is the very opposite of economic growth: it is wasting our limited productive capacity. But note the word “willing.” Well-being is not about (objective) needs, but about being able to escape felt uneasiness. It can turn out to be right or wrong, but that’s beside the point.

Economic growth is the increased ability to satisfy whatever wants people have, for whatever reasons they may have. Examples of economic growth aren't the newest iPhone or plastic toy made in China as much as it’s the availability of quality housing, food and nourishment, and the ability to treat disease. One obvious example of economic growth since the days of Malthus is the enormous increase in our ability to produce food. The quantity and quality have increased immensely. We use less resources to satisfy more wants—that's the meaning of economic growth.

“Economic” means simply economizing or finding the better use of scarce resources (not only natural ones).  Economic growth is thus better economizing. It means that we have the ability, which means we can afford, to satisfy more wants than just the basic needs.

The beautiful thing with economic growth is that it applies to society overall as well as to all individuals: increased productive capacity means more ways of satisfying wants but also cheaper ways of doing so. But this does not, of course, imply that the distribution of access and ability to consume is equal and instantaneous. It spreads in stepwise fashion and will reach everyone.

Increased productivity increases the purchasing power of all money, including (and most importantly) low wages, thus making it much more affordable to satisfy one's needs and wants. But the distribution of such prosperity cannot be equal or instantaneous: any new innovation, new good, new service, etc. will be created somewhere, by someone—it cannot be created for 7 billion plus people instantaneously.

So anything new, including new jobs and new productive abilities, has to spread, as ripples, across the economy. As new things are created all the time, this means that we'll never actually get to a point where everyone enjoys exactly the same standard of living. It cannot be any other way, because economic growth, and the well-being it generates through the ability to satisfy wants, is a process.

Perfect equality is possible only by not having growth: to pull the brakes, not increase well-being. In other words, to not increase convenience and living standards, not figure out how to treat diseases that we would otherwise soon be able to cure. Those are our options, not the fairytale of "equal access to the outcome of growth."

This doesn't mean, of course, that we should be satisfied with inequalities. It only means that we should recognize that some inequality is inescapable if we want everyone to enjoy higher living standards. But we should also recognize that much of the inequality we are seeing today is not of this “natural” kind: it's inequality of political rather than economic origin. This comes in two forms: inherited from privileges enjoyed by a few in the past, reinforced by contemporary political and social structures, and privileges created today through policies creating winners (cronyism, favoritism, rent seeking, etc.).

From the point of view of economic growth as an economic phenomenon, policy-originated inequality has effects on both the creation and distribution of prosperity. First, policy creates winners by (a) protecting some from the competition of new entrants and future winners and (b) restricting (monopolizing) the use of new technologies, thereby propping up incumbents. Second, policy creates losers by redistributing value and economic capabilities to those favored politically. This means that policy has two primary effects on economic growth: it limits the creation of value and distorts its distribution.

Needless to say, this inequality is not beneficial for society overall, but only for those who are favored. It is the creation of winners by creating losers. This is not economic growth, which is accomplished by better economizing—increased ability to satisfy wants.

In a sense, political favoritism and the inequality it causes are the opposite of economic growth, since it creates winners (rich) at the expense of others (generally spread out across a larger population). It's just a redistribution of value already created by introducing inefficiencies into the system: productive capabilities are not allocated based on the creation of well-being but based on political clout. Over time, the economy is actually worse off because of this, so the process of economic growth suffers.

It is important to keep these two “sides” of the inequality coin in mind when discussing the problem. Simply pushing the stop button on economic growth will only accomplish politics’ increased influence over economizing. That's hardly beneficial, at least not for those other than the political class and insiders of the corporatist system. Rather, a solution would be to get rid of politically created and reinforced privilege and allow economic processes to readjust to reality: to target production of well-being instead of favors and influence. This will not do away with inequality as such, but will significantly decrease it and will do away with most of its harmful effects. It would mean an economy where entrepreneurs and workers alike would benefit from producing value for others. In other words, economic growth and higher living standards.

The alternatives are rather easy to understand, yet what's commonly on the agenda of pundits and political commentators is made-up alternatives, often ignorant utopias, that distort the meaning of both privilege and economic growth. The alternatives we have are the ones stated above, nothing else. Make your pick. Striving to realize impossible fairy tales is a waste of time, effort, and resources. That's not how we increase well-being and raise the standard of living. To me, the solution is quite obvious. Most people seem to pick the fairy tale.

[This article is an adaptation of a Twitter thread.]

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The Road Back from Interstellar Serfdom

08/03/2020Gary Galles

Almost as long as I can remember, I have been a fan of science fiction. I like it for the escapism it allows me, especially when I have some free time on a trip. But sometimes I also find some real nuggets of insight or inspiration there. That probably reflects, in part, how my attraction to liberty affects my book choices. A good example is a passage from a book that I read on the trip I just returned from, during a time when escapism from current reality seems particularly justified, particularly with respect to liberty.

It comes from chapter 29 in Jaxin Reid’s Operation Starfold, the seventh of ten books in his Pirates of the Milky Way series, in a conversation about the nature of government, represented in the series by the League versus the Republic.

It’s not so much the actual League or the Republic, it’s the systems of government they represent.

The worldviews are incompatible with one another…control versus freedom…the underlying fundamental assumptions of both systems are diametrically opposed.

When you have a controlled society like the League, eventually everything has to be controlled to make it work….that leads to totalitarianism. Total control by the government.

This is why communism always fails. It’s why socialism eventually fails, too….More and more control is gathered up by the government and when it hits a tipping point, everything falls apart.

The League still operates from a fundamental assumption regarding control of its citizenry….People are meant to be directed rather than fully allowed to pursue their own self-interests.

The Republic, on the other hand, has a fundamental assumption regarding human liberty. People there are free to do what they want, within reason…so conflict between the two was inevitable.

This conversation, which reflects an important aspect of Reid’s series, reminds me so much of the work of Friedrich Hayek that I might call it The Road Back from Interstellar Serfdom. And Reid’s conclusions also echo Hayek.

Ultimately, the system offering more freedom is the side to be on….Because freedom always burns bright in the human heart, no matter what system of government it lives under at the moment.

I respect the notions of personal liberty more than I ever did before. I see now why people have been willing to die so their children can grow up in a more free society. It’s worth fighting for.

As a professor of economics for the last four decades, it has been painful for me to observe how many have received college degrees, or taught classes to those students, while knowing less (or the opposite) of the central importance of liberty, not only in society, but in everyday life, than they could have acquired from reading insightful “escapist” science fiction such as Jaxon Reid’s. And it is hard to be optimistic about what will qualify one as “educated” in the immediate future. But I find hope for the inspiration to love liberty, which can still be found, even if not very easily at far too many colleges.

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Malaguerra, the Antistate Superhero of Sicilian Puppet Theater

08/03/2020Ryan McMaken

At the Libertarian Scholars Conference in 2018, our associated scholar Jo Ann Cavallo (Columbia University) presented new research on the literary figure Malaguerra and how he has been used to express "a critical attitude toward the State" in Italian puppet theater. This research has now been published in the journal Achilles Orlando Quixote Ulysses  (AOQU) as “Malaguerra: The Anti-state Super-Hero of Sicilian Puppet Theater,” AOQU 1 (July 2020): 259–94.

The abstract states:

Although this literary figure is little known today, Morbello/Malaguerra was famous in Sicily and elsewhere in Italy from the mid-19th to mid-20th century. This essay focuses on his vicissitudes in print (Storia dei paladini di Francia) and on the puppet theater stage, with some attention to the spread of his name and adaptation of his adventures outside Sicily, both in the epic Maggio tradition of northern Italy and in the scripts of a Catanese puppeteer active in New York City. Because Malaguerra repeatedly contests the injustices perpetrated by those in power, his story reminds us that l’opera dei pupi was not simply a chivalric soap opera for the masses before television, but could be a vehicle to express a critical attitude toward the State under the cover of dramatizing medieval and Renaissance epics. Indeed, it may be that puppet theater’s political undercurrent was a factor in its massive popularity both in southern Italy and among Italian immigrants in urban centers of the New World. More generally, the essay aims to contribute to the discussion of political ideologies in the chivalric epic genre, especially in the context of Italian popular culture.

The full article can be found here.

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Washington's "Suppression" of the Whiskey Rebellion Betrayed the Revolution. And It Failed.

07/30/2020Ryan McMaken

Some conservatives are now bending over backwards to try to justify their calls for more federal intervention in local law enforcement around the nation. This has been problematic for many because some of these people also have pretended to be in favor of decentralization, local control, and a strict reading of the Constitution when it suits them. But now that the actual respect for the Tenth Amendment and the federalism built into the Constitution for the moment favors left-wing protestors and rioters, the Right is now attempting to come up with reasons why the federal government should be called in to solve our problems after all.

I have dealt with some of the claims elsewhere, such as the claim that the federal government can do whatever it wants when there is an "insurrection"—however loosely defined. And some claim the feds can do whatever they want in order to "guarantee a republican form of government."

But for the more unsophisticated participants in this debate, the memo has apparently gone out stating that federal meddling of this sort is fine because George Washington once did it. While I have seen this stated more than once, an example from the Mises Institute's Facebook page, in response to this article, will serve as an example:

The basic "argument" made by "Jack Jackson" here is that since Washington used federal troops against tax protestors in the 1790, then the president today can obviously do the same, and it must all be both perfectly moral and legal.

Yet Washington's invasion of western Pennsylvania was clearly immoral by the standards of the American Revolution, and thus a betrayal of what countless Americans had died for during the war. Not surprisingly, virtually no taxpayer in the backcountry supported Washington's expedition. After all, internal excise taxes imposed by outsiders had been a major cause of the American secessionist cause in the 1770s—what we now call the American Revolution. In other words, Jackson's interlocutor here, a "Robert Davis" is correct. Washington's grandiose ride to abuse and browbeat Pennsylvania farmers into submission was "the beginning of the end" of what most Americans imagined they were signing on for when they submitted to the US Constitution.

Moreover, contrary to what is simply assumed by those whose view of history extends not far beyond conservative talk radio, Washington's "suppression" of the tax rebellion failed. Murray Rothbard explains in detail how the Whiskey "rebels" were the good guys, and how Washington was a bumbling big-government wannabe who later—helped by the ever atrocious Alexander Hamilton—covered up his failure to get his way.

From chapter 44 of Making Economic Sense:

The Official View of the Whiskey Rebellion is that four counties of western Pennsylvania refused to pay an excise tax on whiskey that had been levied by proposal of the Secretary of Treasury Alexander Hamilton in the spring of 1791, as part of his excise tax proposal for federal assumption of the public debts of the several states.

Western Pennsylvanians failed to pay the tax, this view says, until protests, demonstrations, and some roughing up of tax collectors in western Pennsylvania caused President Washington to call up a 13,000-man army in the summer and fall of 1794 to suppress the insurrection. A localized but dramatic challenge to federal tax-levying authority had been met and defeated. The forces of federal law and order were safe.

This Official View turns out to be dead wrong. In the first place, we must realize the depth of hatred of Americans for what was called “internal taxation” (in contrast to an “external tax” such as a tariff). Internal taxes meant that the hated tax man would be in your face and on your property, searching, examining your records and your life, and looting and destroying.

The most hated tax imposed by the British had been the Stamp Tax of 1765, on all internal documents and transactions; if the British had kept this detested tax, the American Revolution would have occurred a decade earlier, and enjoyed far greater support than it eventually received. 

Americans, furthermore, had inherited hatred of the excise tax from the British opposition; for two centuries, excise taxes in Britain, in particular the hated tax on cider, had provoked riots and demonstrations upholding the slogan, “liberty, property, and no excise!” To the average American, the federal government’s assumption of the power to impose excise taxes did not look very different from the levies of the British crown.

The main distortion of the Official View of the Whiskey Rebellion was its alleged confinement to four counties of western Pennsylvania. From recent research, we now know that no one paid the tax on whiskey throughout the American “back-country”; that is, the frontier areas of Maryland, Virginia, North and South Carolina, Georgia, and the entire state of Kentucky.

President Washington and Secretary Hamilton chose to make a fuss about Western Pennsylvania precisely because in that region there was a cadre of wealthy officials who were willing to collect taxes. Such a cadre did not even exist in the other areas of the American frontier; there was no fuss or violence against tax collectors in Kentucky and the rest of the back-country because there was no one willing to be a tax collector.

The whiskey tax was particularly hated in the back-country because whiskey production and distilling were widespread; whiskey was not only a home product for most farmers, it was often used as a money, as a medium of exchange for transactions. Furthermore, in keeping with Hamilton’s program, the tax bore more heavily on the smaller distilleries. As a result, many large distilleries supported the tax as a means of crippling their smaller and more numerous competitors.

Western Pennsylvania, then, was only the tip of the iceberg. The point is that, in all the other back-country areas, the whiskey tax was never paid. Opposition to the federal excise tax program was one of the causes of the emerging Democrat-Republican Party, and of the Jeffersonian “Revolution” of 1800. Indeed, one of the accomplishments of the first Jefferson term as president was to repeal the entire Federalist excise tax program. In Kentucky, whiskey tax delinquents only paid up when it was clear that the tax itself was going to be repealed. 

Rather than the whiskey tax rebellion being localized and swiftly put down, the true story turns out to be very different. The entire American back-country was gripped by a non-violent, civil disobedient refusal to pay the hated tax on whiskey. No local juries could be found to convict tax delinquents. The Whiskey Rebellion was actually widespread and successful, for it eventually forced the federal government to repeal the excise tax.

Except during the War of 1812, the federal government never again dared to impose an internal excise tax, until the North transformed the American Constitution by centralizing the nation during the War Between the States. One of the evil fruits of this war was the permanent federal “sin” tax on liquor and tobacco, to say nothing of the federal income tax, an abomination and a tyranny even more oppressive than an excise.

Why didn’t previous historians know about this widespread non-violent rebellion? Because both sides engaged in an “open conspiracy” to cover up the facts. Obviously, the rebels didn’t want to call a lot of attention to their being in a state of illegality.

Washington, Hamilton, and the Cabinet covered up the extent of the revolution because they didn’t want to advertise the extent of their failure. They knew very well that if they tried to enforce, or send an army into, the rest of the back-country, they would have failed. Kentucky and perhaps the other areas would have seceded from the Union then and there. Both contemporary sides were happy to cover up the truth, and historians fell for the deception.

The Whiskey Rebellion, then, considered properly, was a victory for liberty and property rather than for federal taxation. Perhaps this lesson will inspire a later generation of American taxpayers who are so harried and downtrodden as to make the whiskey or stamp taxes of old seem like Paradise.

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Keep Those Federal Troops out of American Cities

07/30/2020Ryan McMaken

The violence and the utter disregard for basic human rights displayed by the Left in recent years—combined with its support for war crimes when a Democrat is president—have made me inclined to play nice with conservatives these days. At least conservatives aren't planning to torch my neighborhood any time soon, and at the moment they're no worse than the Left on foreign policy.

On the other hand, sometimes even the relatively less bad guys (for now) come to some very dangerous conclusions.

[RELATED: "About Those Spooky Federal Cops in Portland" by Jeff Deist]

Specifically, some authors at conservative publications are now demanding that the president send in federal agents and troops to make arrests and intervene in local law enforcement to pacify rioters in Portland and other American cities. These pundits are claiming that since local officials allegedly aren't responding with sufficient alacrity to rioters, it's time to send in federal troops.

It is questionable that the president has the legal authority to do this. But even if he does have this power—legally speaking—basic commonsense principles of subsidiarity and decentralization inveigh against federal intervention. In other words, a basic respect for the principles behind the Bill of Rights and the Declaration of Independence ought to cause one to reject the notion that it's a good idea to send in federal troops to "solve" the crime problems experienced in American cities.

Here's one example: in an article titled "It's Time to Crush the New Rebellion against Constitution" at Real Clear Politics, author Frank Miele claims "the president is designated as the commander in chief" and therefore "shall be expected to act during a crisis of 'rebellion or invasion' to restore public safety."

Miele addresses two legal questions. The first is whether or not federal troops or agents can act independently when protecting federal property—such as a federal courthouse. The second question is whether or not federal troops can intervene even when no federal property is under threat.

Arguably, in the former case federal agents would be well within their prerogatives to protect federal property as a security guard might do. This, however, does not necessarily empower them to make arrests or assault citizens outside the federal property itself, on the streets of a city well outside the federal compound. The so-called constitutional sheriffs movement—which the Left hates—has it right on this. Local law enforcement ought to be the final authority when it comes to making arrests.

Clearly, however, Miele will not brook such limitations, and he supports the idea that federal troops can intervene "where no federal property is involved."

And what are the limitations on this federal power? Basically, there are none, in Miele's view. So long as we define our adversaries as people fomenting a "rebellion" nothing is off the table. Not surprisingly, Miele strikes a worshipful pose toward Abraham Lincoln's scorched-earth campaign against the Southern states of the US in the 1860s. Those people were "rebels," you see, so the president was right to "tak[e] bold action" even if it meant "skirting the Constitution." Because "there was never any doubt where [Lincoln's] allegiance lay," it was perfectly fine when he abolished the basic legal rights of Americans, such as the right of habeas corpus.

The use of the word "rebellion" is central to understanding the profederal position here. Authors like Miele (and Andrew McCarthy at National Review) have routinely used words like "insurrection" or "rebellion" in order to support their claim the current unrest requires a Lincoln-like response, including a Lincolnesque abolition of half the Bill of Rights.

The Moral Case for Local Control, Made by American Revolutionaries

As a legal matter, of course, I have no doubt that federal judges and supporters of federal meddling could find a way to slice and dice the Constitution so as to make it say whatever they want. As a moral and historical question, however, it is clear that sending in federal troops without an invitation from local leaders is blatantly contrary to the provisions of the Declaration of Independence and is contrary to the Tenth Amendment.

As I explained here, the Declaration lists that the misuse of the executive's (i.e., the king's) troops was a reason for the American rebellion of 1776. These troops must receive the permission of local lawmakers:

The American revolutionaries and those who ratified the US constitution…thought they were creating a political system in which the bulk of land-based military power would rest in the hands of the state governments. Standing armies were to be strenuously opposed, and the Declaration of Independence specifically condemned the king's use of military deployments to enforce English law in the colonies and "to render the Military independent of and superior to the Civil Power." These principles go back at least as far as the English Civil War (1642–51), when opposition to standing armies became widespread.

Thus, any attempt to send in British troops without the approval of the colonial legislatures was an abuse. This same principle was later applied to the state legislatures in relation to federal power.

Sending in federal troops to override local officials is in direct opposition to the moral underpinnings of the American Revolution. But this doesn't stop Miele, who then insists that Article IV of the Constitution authorizes federal invasions because the text says "The United States shall guarantee to every State in this Union a Republican Form of Government." According to Miele, the "republican form of government" here "means government of the people, by the people and for the people—not the mob."

This definition of a republic is something Miele apparently just made up. This is hardly a standard definition of "republic," especially in the eighteenth century—the context most relevant for our purposes here. In those days, "republic" mostly meant "not a monarchy" and something like a decentralized state ruled by a commercial elite.

The idea that the president can send in troops anywhere whenever we decide that a local government is not guaranteeing a "republic"—based on whatever idiosyncratic definition of "republic" we might choose—is dangerous indeed.

In another example, we find authors "Because state and local Democrat officials refuse to restore order, the federal government must….Enough is enough. Those responsible for this new wave of insurrection must face the full force of federal law. "

Note the language about "insurrection"—as if a minuscule clash between some left-wing and right-wing demonstrators in Denver—an example the authors use to justify their position—requires a federal invasion.

Presumably governments are expected to intervene to prevent this sort of thing from happening.

But which government shall do that? It's a safe bet that the authors of the Declaration of Independence would say that a scuffle in Denver clearly lies within the authority of the government in Colorado. After all, the American patriots fought a war—and many died in it—to ensure local control outside the hands of a powerful executive in command of a standing army thousands of miles away.

It is indeed true that the rights of those who wished to see Malkin speak were violated. But here's the thing: the rights of Americans are violated every single day in every city of America. Murders, rapes, thefts, and even gang warfare are not unheard of across this nation, year in and year out. Moreover, the data is clear that police agencies are really quite bad at bringing these criminals to justice.

So, should we call in the feds to solve these problems? There were more than fifty homicides just in the city of Denver last year. There were many more assaults and attempted murders. Doesn't this level of bloodshed constitute a sort of "insurrection" against the decent people of the city? Certainly if we're going to be free and loose with terms like these, as is now apparently the MO of advocates for federal intervention, our conclusion could easily be yes. We might conclude the local police are unwilling to do what it takes to "establish order" and do something about these terrorists and thugs. Will sending in the FBI or the Department of Homeland Security solve this problem?

Fortunately, cooler heads have somehow prevailed, and "sending in the feds" is not a run-of-the-mill policy option. This makes even more sense when we remember that there is zero reason to assume federal cops are better at bringing peace to a city than the state or local officials. These feds are the same people and organizations that have been running a failed and disastrous war on drugs for decades. These are the people who daily spy on law-abiding Americans, in blatant violation of the Bill of Rights. These are the people who were blindsided by 9/11 in spite of decades of receiving fat paychecks to "keep us safe." These are the people (i.e., especially the FBI) who have conspired against Americans in order to unseat a democratically elected president.

Unfortunately, old habits die hard and the myth prevails on both the left and the right that if we're not getting the result we want from politicians, then the answer lies in calling in other politicians from somewhere else to "solve" the problem. But just as it would be contrary to basic notions of self-government and self-determination to call in the UN or the Chinese government to "protect rights" in the United States, the same is true of calling in federal bureaucrats to "fix" the shortcomings and incompetence of state and local bureaucrats. The American revolutionaries created a decentralized, locally controlled polity for a reason. Abolishing federalism to achieve short-term political ends is a reckless way to go.

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Shelton Derangement Syndrome: Which Republicans Will Side with Fed Groupthink?

07/29/2020Tho Bishop

Judy Shelton’s long and bumpy Federal Reserve nomination cleared an important hurdle last week when the Senate Banking Committee voted on party lines to send her for final consideration before the full Senate. Right away, Shelton’s nomination received pushback from the resistance wing of the Republican Party, with Mitt Romney and Lisa Murkowski going on the record as opposing her nomination. With unanimous Democratic objection to Shelton, it would take just two more Republican dissenters to eliminate the most interesting Federal Reserve nominee in recent history.

While it’s easy to simplify the political intrigue as just yet another inner-DC Trump proxy war, the battle over Judy Shelton’s nomination—particularly in the context of the Fed’s actions over the last few months—is very useful as an illustration of our wise senators’ remarkably shallow grasp of monetary policy. It is true that there are reasonable criticisms of some of Shelton’s past work, including her more recent pivot toward a more Trump-friendly championing of an interest rate cut last summer. However, these criticisms seem trite in a world where the Fed is engaging in unprecedented actions, such as buying up corporate junk bonds and utilizing BlackRock to effectively nationalize large parts of America’s financial market.  

It is noteworthy that many of Shelton’s loudest critics have been completely silent on this matter.  

One of the most common critiques waged against Dr. Shelton is that she would be a political loyalist and has questioned the value of Fed political independence. Ignoring the fact that documented American history has shown the notion of “Fed independence” to be a noble myth, I am curious to know what a politicized Fed would look like in practice. After all, the Fed has long tossed aside its traditional policy tools in no small part so that it can accommodate the political decisions made by the legislative and executive branches.  

The proudly independent Jerome Powell had already bent the knee to the White House’s wishes when he failed to follow through with a gradual reduction of the Fed’s balance sheet as stock market turbulence created political headaches. Naturally, there were no cries then from the faux populist Sherrod Brown, who has long been in lockstep with fellow progressives in opposing any sort of monetary tightening. It is unclear whether these alleged working-class champions are intentionally advocating for policy that enriches the billionaire dollar class by boosting financial asset prices, or whether they simply don’t understand the real-world consequences of what they parrot in public hearings.

Among Dr. Shelton’s Republican critics has been Senator John Kennedy of Louisiana, who made the snide comment that “Nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas” following her testimony in February. Unfortunately, that seems to be precisely what we have, with a Federal Reserve engaging in levels of economic intervention beyond anything America has seen. Rather than rail against Jerome Powell’s apparent dedication to turning America into Japan, during the last Senate oversight hearing he asked a few courteous questions of our wise Fed chair and signed off early.  

In Senator Kennedy’s defense, it’s easy to take silly potshots at a public figure who has become something of a pinata to a certain class of Serious People in American financial punditry. It’s much harder to be a critic of America’s central banker at a time of crisis when elected officials are struggling to keep up with daily news. But it is precisely the fact that legislators are utterly ill-equipped to provide serious checks on Federal Reserve “expertise” that someone like Dr. Shelton would be the rare plus to the Fed’s board. 

While it is unlikely that if confirmed Dr. Shelton would masterfully reveal that she is actually the gold bug the media has depicted her as, what is clear is that she would give the Federal Reserve something it desperately needs—ideological diversity. This is also why Very Serious People hate her. Shelton’s willingness to challenge the deified “PhD” standard of modern fiat money and question such sacred cows as Fed independence makes her a potentially dangerous threat to the groupthink that has become far too pervasive in central banks. Dr. Shelton understands the dangers of central banks becoming de facto central planners in modern economies, and she understands the valuable role that gold played in past monetary systems. She reads and respects the ideas of serious heterodox monetary scholars whose perspectives have long been completely ignored within Fed deliberations. She even received her education in places like Portland and Utah, quite a different resume from most of her Ivy League–trained colleagues. 

If confirmed, will Judy Shelton be a revolutionary force within America’s central bank? Almost certainly not. Just as no election will truly drain the swamp in Washington, no Fed nominee is going to restore humility to the Eccles Building.  

Instead, Shelton’s nomination is best seen as a litmus test for Republican senators. Are you interested in actually promoting ideological diversity within American institutions, or are you simply willing to stand with the academic gatekeepers that have given us the Federal Leviathan that we have today? 

We know where Mitt Romney and Susan Collins stand. We shall soon see where the rest of their colleagues fall.

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Why "Sortition" Offers an Alternative to Our Corrupt Ruling Class

As the lockdowns have shown, even well-established democracies are unable to mobilize the judicial and parliamentary tools to ward off the onslaught on liberty. Without means of legal resistance, people have had to accept that the basis of their livelihood has been taken away or at least severely damaged.

Democracy by popular vote provided no guarantee against tyranny. Given the failure of the usual system of democracy by competitive election, it might be time to give "demarchy" a try. There's no reason to assume that it would be any worse than what we have now.

Under a system of demarchy, also called sortition, the people's representatives on the legislative body are selected through lot. Concerning the method, only sortition requires a random mechanism to select a representative sample of the population to serve as the lawgivers.

The problems with the present system of democracy through the election of professional politicians who represent political parties are well known and documented.

As I've explained here at mises.org in the past, this method has a long history.

Critics of demarchy claim that a parliament whose members are selected by chance has less expertise than an elected parliament and that this would increase the power of the bureaucracy. The truth, however, is that the specific knowledge that is now present in the assemblies is in knowing how to gain and to exert power. Nonpolitical competence is missing. Even more so, the current system of party politics has led to a huge bureaucracy and a massive buildup of the power of the state apparatus. The political parties and the bureaucracy cooperate to maximize their power, which they achieve by having more state, not less.

With the public's support to change the structure of the party democracy, the first step would be to complement the present system with an additional chamber. In this chamber—a kind of senate or upper house—members chosen by lot would possess veto rights over the decisions taken by the parliament (Congress) and government (the presidency) including the judiciary (Supreme Court). Such a "fourth power" would be the "voice of the people." Although it is not yet a government and not yet the lawgiver, the senate composed of members chosen by lot has the right to stop the encroachments of government and of the state bureaucracy because of the veto power it holds. 

The next step would be to create a general assembly to serve as the prime lawgiving body. The assembly must be large enough to represent the people. For that purpose, it must comprise persons who are selected randomly from among the constituency. Establishing the general assembly requires a reform of the election laws. In order to achieve this, libertarians must get a majority in the existing parliament (Congress). The final step in the reform of the state structure would be to add a supervisory body and an executive branch of the assembly.

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Mises the Sunny Pessimist

Ludwig von Mises was called several names and epithets in his life, by his admirers and enemies alike. His friends and colleagues dubbed him the “Last Knight of Liberalism,” while his critics called him intransigent, fanatic, and even less flattering epithets.

Just recently I came across another nickname the great Austrian had in the 1920s and 30s: the sunny pessimist. Writing to Bettina Greaves in 1974, Karl Menger, the son of the famous economist, recounts how this came about:

In the years 1927–36, I often met Mises in homes of common friends. In the second half of that period he mad[e] the most terrible predictions. (Once, I was told, a lady after listening to him for half an hour retired and had to be comforted.) All his gloomy prophesies (later surpassed by reality) were uttered with complete equanimity and a constant smile, which earned him the nickname of the sunny pessimist.

It is easy to understand how Mises could be pessimistic in the 1920s and '30s, as Europe was descending rapidly into the hell of socialism. He could explain almost in real time how the policies of the Nazis and the socialists they replaced in power led to the destruction of civilization and the world war. Omnipotent Government from 1944 is perhaps his fullest explanation of the process of the destruction of German civilization, but he saw the same trends in other European countries. Thus, in 1940, in the manuscript that was later published under the title Interventionism: An Economic Analysis, Mises wrote that the Nazis had practically won before they even invaded France; the policies of the western democracies were practically indistinguishable from the National Socialists’, and the French government found it more important to prosecute war profiteers than to ensure adequate provisioning of the French army.

It is more impressive that Mises kept calm and smiling throughout, just like Vera Lynn urged the British soldiers to. Already at the end of the First World War, Mises recounts in his Memoirs (p. 55), he had arrived at the “hopeless pessimism that had long pervaded the best minds of Europe.” Yet his personal philosophy allowed him to escape the apathy such pessimism can lead to. Already as a teenager he had chosen a line from Virgil: tu ne cede malis sed contra audentior ito (do not give in to evil but proceed ever more boldly against it) as his motto. This continued to be his attitude through the darkest days of European history.

Another anecdote recounted by Rudolf J. Klein, one of Mises’s pupils, may substantiate Mises’s prophetic abilities. Writes Klein:

In 1935 he [Mises] came back to Vienna from Geneva for a short visit. I saw him at his old office at the Chamber of Commerce and asked what he thought would be the final outcome of the Hitler regime. He replied (in 1935!), “When one wing of the German army will be at Vladivostock and the other at Gibraltar, the whole thing will break down!”

Aside from the geographic inaccuracies—as is well known, the Germans never invaded Spain and they were stopped at Moscow and Stalingrad, not Vladivostok—Mises’s foresight is eerie. Others, it is true, predicted German aggression throughout the thirties, but those predictions seem based on little more than Teutophobia. Mises, on the contrary, loved German culture, was well read in the German classics and German philosophy, and it pained him deeply to see the destruction of German and European civilization. Yet he understood the inevitable outcome of socialism and autarky: the breakdown of the international division of labor and war.

Mises’s social philosophy is just as relevant today as ninety years ago for understanding the chaos around us. Ideas rule the world, and the real factor supporting the ruling elite is always the dominant ideologies. Just like Mises had to battle the Marxist and non-Marxist socialists who took power across Europe in the first decades of the twentieth century (and in most places hold on to it to this day), so today we are faced with cultural Marxists and progressive mobs. Since there is no way to defeat them in the long run except by exposing their erroneous and antisocial doctrines, and since the “progressive” barbarians may well remain in control for the foreseeable future (and cause untold damage to the economic and spiritual civilization of the West—or what’s left of it), it’s well to keep before us Mises’ personal example. There are reasons enough to be pessimistic, but let us at least be sunny pessimists.

Tu ne cede malis sed contra audentior ito.

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New Unemployment Increased to 1.4 Million Last Week as Recovery Falters

07/25/2020Ryan McMaken

Listen to the Audio Mises Wire version of this article.

New unemployment claims increased during the week of July 18, rising to 1.41 million over the previous week's total of 1.3 million (seasonally adjusted).

Last week was the first week of increasing job losses after sixteen weeks of gradual declines since March. Job losses peaked during the week of March 28 when a stunning 6.8 million workers filed for unemployment benefits.

Since then, weekly totals of newly unemployed had gradually declined until last week's increase.

In total, since mid-March, more than 52 million workers—41 percent of the working age population between 25 and 56 years of age—filed for unemployment benefits.

As of the week of July 11, "continued claims" for unemployment were sought by 16.1 million workers nationwide. Continuing claims had peaked at 24.9 million unemployed during the week of July 4. A decline in continuing unemployment from 24 million to 16 million shows some progress, but a "normal" total for continuing claims in recent years is less than 3 million. Arguably, "excess unemployment" at the moment totals at least 13 million.

The rising unemployment comes partly as a result of state governments forcing the closures of some businesses, or restricting operations, in the name of mandatory social distancing.

Not only has this reduced possible working hours for employees, but it has likely reduced business owners' efforts to expand their businesses due to the extreme uncertainty that accompanies "emergency orders" now issued by governments. These orders are not subject to debate or any meaningful legislative process, making them far more unpredictable than ordinary legislation.

Revenue has declined precipitously for many businesses in recent months.

The approximately 16 million workers who continue to collect unemployment benefits will face a big problem next week as the additional $600 unemployment benefit will run out. CNBC explains:

Tens of millions of Americans who lost their jobs because of the coronavirus pandemic have been able to collect an extra $600 in weekly federal unemployment benefits over the past few months on top of the standard amount given by their state. For many households, the enhanced benefits have been a financial lifeline amidst record job loss and a burgeoning recession.

But on July 31, that enhanced benefit will end — and that could have dire consequences for millions of households.

Political pressure is mounting to continue the benefit, and to pass another stimulus and relief package overall.  Given that tax revenues have collapsed, this will require essentially "printing" the money necessary for an expansion of the "CARES" Act. The US is now on track to produce more than $3 trillion in deficit spending for the 2020 fiscal year, which ends on September 30.

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