Vox Gets it Wrong: the Left is Abandoning Free Speech

Vox Gets it Wrong: the Left is Abandoning Free Speech

03/19/2018Tho Bishop

Last week Matt Yglesias over at Vox tried his best to deflate the notion that America was becoming increasingly hostile to free speech. Unfortunately, as Daniel Bier over at Skeptical Libertarian noted, Yglesias's own charts indicate that support for free speech among "Liberal" and "Slightly Liberal" Americans is at the lowest point in over 40 years. 

Utilizing data from the General Social Survey, Yglesias shows that the US as a whole has demonstrated a growing willingness to defend the freedom of homosexuals, communists, militarists, and anti-theists to speak freely. Of course none of this should be particularly surprising. Prominent politicians on the left have actively praised communist leaders, militarism has received bipartisan support for decades, and social trends have become increasingly more tolerable for homosexuals and atheists.


Meanwhile, the GSS data shows a drastic drop in support for the free speech rights of racists. 

It should go without saying that defending the rights of racists to speak is not the same thing as defending those ideas. In fact, one's commitment to free speech matters most when it involves ideas you strongly oppose. As Andrew Syrios wrote for the Mises Wire:

Discerning what exactly free speech is can sometimes be challenging, as in cases of libel, slander, and direct threats. But these are really not the issues at heart here. The vast majority of speech being “regulated” today is simply that of an unpopular opinion. Yes, many ideas are bad. And they should be refuted. Moreover, resorting to the use of political force to silence adversaries is a sign of the weakness of one’s own position. But, in using force to silence others, anti-speech crusaders are making another argument. They’re arguing that political force can and should be used to silence people we don’t like. What idea could be worse than that?

By this measure, the support for using force to silence the thoughts of others is growing in this country. In fact, if we use Vox's own data, they are declining most dramatically among those who identify as "Liberal" and "Slightly Liberal." 


In conclusion, Vox gets everything wrong, in their article titled "Everything we think about the political correctness debate is wrong."

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Will It Take Food Shortages to End Support for the Shutdown?

04/28/2020Jeff Deist

Listen to the Audio Mises Wire version of this article.

Americans are uniquely privileged, to the point of simply imagining they can stay home for months and months without suffering severe economic hardship as a result. Our unique privilege is delusion, the mentality that America is rich and will remain rich without particular effort on our part. Abundance simply materializes around us, regardless of incentives, and the job of politicians is to rearrange this abundance more equitably.

Polls such as this one showing widespread American support for quarantines and business shutdowns are evidence of this American privilege. Eighty percent of respondents think shutdowns by various state governors are justified as a response to the COVID-19 virus, and one-third support extending closure for another six months! 

This reflexive and unthinking complicity from the American public is partially explained by media hype, of course, over an illness which at this writing has killed fewer than sixty thousand Americans. Fear and hysteria always sell. The press clearly wants the coronavirus to be a major event, one that unseats Trump in the fall. (For its part, the administration is doing a terrible job, starting with the awful Dr. Fauci, whom the president should have sacked months ago.) And clearly the various governors' responses are wildly out of proportion to the actual public health threat, even if initially well intentioned due to sheer uncertainty of the virus's lethality. 

But something far more fundamental is at work here. Americans simply fail to understand, or even much think about, the fragility of distribution chains and the goods and services we rely on. Earlier this week the chairman of conglomerate Tyson Foods warned that disruptions at processing plants could create very serious shortages of beef, chicken, and pork in US grocery stores, and decimate livestock farmers. And of course this was bound to happen as the dominos fell: the shutdowns would not only impact "nonessential" goods, but everything

Who didn't see this? Will it take outright food shortages to make Americans change their minds about whether the shutdown is "worth it"?

We only need look at India for an example of what business and work shutdowns create in a country without  as much existing wealth to consume, where far more people live close to the bone. The national work moratorium ordered by Prime Minister Modi has sent millions of migrant workers and unskilled laborers into very real danger of starvation. Already living hand to mouth and penniless, their jobs essentially banned, many have taken to walking hundreds of miles in 100-degree heat to their home villages—in hopes of being fed by their families. In a country with widespread poverty and depressingly little per capita capital investment, the shutdown is a death sentence for many. Without much capital accumulation, Indians have little savings and few investments to consume when income grinds to a halt. And India is hardly the only poor country at risk and needing food relief; one NGO official warns of "biblical" famines across thirty underdeveloped nations if supply chains continue to be disrupted and charitable economic aid dries up:

“We are not talking about people going to bed hungry,” he [David Beasley of the World Food Programme] told the Guardian in an interview. “We are talking about extreme conditions, emergency status—people literally marching to the brink of starvation. If we don’t get food to people, people will die.” 

This is what poverty really means: having little or no cushion of wealth for an emergency. Poverty is best defined as a lack of savings and resulting capital, leaving people totally dependent on new and consistent income to survive. It is a condition only capital accumulation can improve. And yet "capitalism" is blamed for the unfolding tragedy before us:


Will stories like this finally make Americans understand the severity of the situation? BBC images from India show the heartbreaking human toll of the unprecedented decision simply to stop human work activity due to an infectious disease. Americans should take note, and soon. 

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The Paycheck Protection Program: Paying People Not to Work?

04/28/2020Robert Aro

The stimulus packages being handed out across this world provide us with an opportunity to document the anticapitalist process as it unfolds in real time, keeping in mind that when these inflation schemes fail, it will likely be blamed on capitalism. My previous article discussed the $600 billion Main Street Lending Program (MSLP), which is very different from and not to be confused with the $670 billion Paycheck Protection Program (PPP). Whereas the MSLP grants between $1 million and $150 million in the form of a secured loan, the PPP only provides the lesser of $10 million and 250 percent of a borrower’s average monthly payroll costs. However, what is more concerning than the amount of the loans are the terms of the “loans.” Per the US Small Business Administration (SBA):

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).

In what may go down in history as one of the most aptly named loan programs ever, the “Paycheck Protection Program,” appears to be living up to its moniker; but is it a “real loan” or a loan in name only? Even worse, nowhere does it say that employees must work in order to receive the money. Rather, the SBA goes on to mention that “forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.” Thus, not only does it make sense for the entrepreneur to maintain all staff, but the entrepreneur is also incentivized to maintain existing salary amounts as well, regardless of whether the employee works or not.

A recent Washington Post article said it best, citing a legal opinion to explain that

“the company can still choose to use PPP funds to pay that employee, even if the employee is not actually performing real work.” But that doesn’t mean the loan is designed to pay people “not to work.”

The question to consider is: should society be paying people not to work? If yes, then where should this money come from? For this program, the money will be created via deposit institutions that will provide the loans to businesses. Those deposit institutions will then be able to borrow from the Fed’s newly created Paycheck Protection Program Lending Facility (PPPLF) and exchange the PPP loan as collateral, guaranteed by the SBA.

It may seem strange that the Fed would take on a loan when that loan may be forgiven upon the debtor spending the money on payroll, but in the 31-page "Federal Register Notice: Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program" it is noted that:

As a general matter, SBA guarantees are backed by the full faith and credit of the U.S. Government.

A government guarantee makes good economic sense to the Fed, which concludes in a report to Congres that:

PPP loans under the PPP are fully guaranteed as to principal and interest by the SBA, and these guaranteed loans will fully collateralize extensions of credit under the PPPLF. As a result, the Board does not expect that the PPPLF will result in losses to the Federal Reserve.

On April 16, 2020 at 9 a.m. the Fed’s loan facility opened, and at noon on the same day the SBA had already made 1,661,367 approvals. Only time will tell how much of this money will be paid back, but there seems to be little reason for anyone to offer to pay it back.

The combination of increasing the money supply in order to pay people not to produce goods or services has consequences that not a lot of people are talking about. It flies in the face of the free market and is as nonsensical as a negative interest rate. A loan that is forgivable is unconventional to say the least, because a loan is normally defined as an amount borrowed that is expected to be paid back with interest. When a loan is given on a first-come-first-served basis for the purpose of paying people not to work and is forgivable because it’s guaranteed by the United States government, we shouldn’t call it a loan. It may be called socialism, maybe interventionism, and some may still prefer the term statism; but one thing is certain when it comes to the Paycheck Protection Program: it’s not capitalism!

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Open Competition in the Marketplace as Consumer Protection

04/27/2020Raushan Gross

When the customer receives defective, shoddy, or inferior-quality products and above market price—from the only game in town—the customer lacks an easy escape from incompetent or unscrupulous sellers. It behooves the customer to seek other viable options in the market from firms that offer similar products. But if there are no competitors at all, who and what improves choice and consumer protection?1 

What we know doesn't protect consumers are high barriers to entering the marketplace.  These are barriers that are set up to the extent of not allowing newcomers to risk their capital in order to better serve the customer. These barriers often take the form of government regulations. But regulations generally restrict competition rather than enhance it. Although government bureaucrats may have good intentions when putting regulations in place, regulations don't actually protect consumers. More regulation means fewer sellers, fewer customer choices, and fewer consumer protections. More market competition, on the other hand, provides more customer protections. Competition allows firms to develop better ways to serve people and protects customers by providing more choices.

Although consumers should be able to shop around for substitutable goods and services, oftentimes they can’t. For example, the taxi industry—heavily regulated by harsh and inflexible rules—has been disrupted by technology-driven transportation services such as Uber. Professor Walter Williams highlighted the lack of competition in the taxi industry back in the early 1980s. Now we see the result of newcomers entering this industry. They protect customer wants and needs and have broadened their customer base many times over. More importantly, they have given customers a choice, and thereby protection.

Competition, for the sake of consumer protection, hinges on the premise of the market as a process. As Sowell stated in Wealth, Poverty, and Politics, “Wrong premises seldom lead to correct conclusions.”  A wrong premise is erecting more barriers to industry and market entry. What protects the consumer from a single provider selling faulty products and providing bad service? The answer boils down to the number of choices available to the consumer. Producers and providers have to respond to particular prices, quality, and service matters that represent customer "votes"—how much business they get. Votes signal to the producer-entrepreneur that they are serving clients well, which encourages the producer to provide the utmost quality.

From the consumer's point of view, facts about the market are only observed and discovered through competition. It is true that in a competitive and free market, entrepreneurs learn from the price system which services and products are preferred. They might also learn other facts about a market: the number of competitors, the market price, the cost of labor, etc. The consumer employs a similar process.  Competition allows them to collect information as well.

  • 1. See Henry Hazlitt, Man vs. the Welfare State.
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Wave of Saudi Crude Imports Could Open Door for Wave of US Exports

04/27/2020Troy Vincent

According to multiple ship-tracking data services such as Llyod's List and Tanker Trackers, there are between 40 and 50 million barrels (bbl) of Saudi Arabian crude en route to the US at the moment. As such, US crude imports are set to surge in May. Although this level of imports seems unfathomable amid the current rout in US crude prices, it may actually be a welcome development for both US crude producers and oil refiners.

Lloyd's List Intelligence projects that US imports of Saudi Arabian crude will rise to nearly 1.2 million barrels per day (bpd) in May as a flotilla of laden very large crude carriers (VLCCs) arrives on US shores. If realized, according to US Energy Information Association (EIA) data, this would put US imports of Saudi crude at their highest since February 2017. For reference, the EIA's most recent monthly data, for the month of January, show US imports of Saudi crude at just 401,000 bpd. Last May, the US imported just 452,000 bpd of Saudi crude.

Although on the surface it seems absurd that imports of Saudi crude would spike even as the US crude benchmark sinks into negative territory amid oversupply, this development may be welcomed by both US producers and refiners. For producers, empty VLCCs are the key to ramping up export volumes. VLCCs are largely the only vessel used to ship US crude to Asia, and with high freight rates a VLCC arriving in the US Gulf Coast is unlikely to leave and travel back to the Arab Gulf empty.

The ships arriving to offload Saudi crude will then either be used as floating storage for US crude or as a means to get US crude to places such as South Korea, Japan, China, and Singapore. Either way, they will serve as an outlet for volumes that will no longer need to find a home in onshore storage.

As for US refiners, the buyers of the soon-to-be-delivered crude certainly saw multiple reasons to book these deliveries. First, refiners were likely persuaded by Saudi Aramco’s slashing of their official selling price (OSP) for April. Aramco cut the April OSP of its Arab Light crude to the US to a discount of $3.75 per bbl versus the Argus Sour Crude Index, down $7 per bbl from March.

Secondly, with diesel refining margins far stronger than those of gasoline, US refiners will benefit from running a heavier barrel of crude, which yields higher volumes of diesel. Arab Light Saudi crude, with an American Petroleum Institute (API) gravity of 34, is heavier and far more sulfur rich compared to the majority of the West Texas shale production, which has an API gravity of around 42 (the higher the rating, the lighter the crude).

On net, this development could counterintuitively mean lower crude stock builds than would have otherwise been possible as ships are refilled with US grades and since US refiners have a greater incentive to refine crude when margins are higher. Given that US market participants booked the cargoes knowing their desired refining slate and available onshore storage capacity, efforts by policymakers to prevent these imports from coming onshore could not only eliminate a needed export outlet for US crude, but could also weigh on refinery run rates in the US, exacerbating builds in crude storage. Market prices continue to be the best coordinator of the oil supply chain and efforts to intervene in this supply chain are likely to cause greater harm than good.

Originally published by DTN.

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MMT and Central Banking

It seems that modern monetary theory (MMT) doesn't make a real distinction between monetary policy and fiscal policy. If that's the case, then a system based on MMT has no need of a central bank.

In the last several years modern monetary theory has been thrust forth excitedly by the more progressive ranks of the Democratic Party, led by Bernie Sanders and Alexandria Ocasio-Cortez, as a wondrous, curative economic elixir. MMT being brought to the fore has stimulated a robust discussion that has prompted many good questions. Not yet among them to my knowledge, however, are: Why do we still need the Fed, and does this mean that we should lower taxes?

For those who are unfamiliar with it, MMT is perhaps best explained by metaphor. Stephanie Kelton, the chief economist for Bernie Sanders’s campaign in 2016 and a leading MMT economist, has explained it in terms of a bathtub being filled up with water. The spigot is the federal government; the water is money; the tub is the economy; and the drain is taxes. According to MMT, when the Federal government needs money it simply “turns on the water” by contacting the Treasury, which contacts the Fed, which credits the federal government’s account at the Fed for that amount. The government then spends that money into the economy; to continue the metaphor, water is filling up the tub. Now there is only so much space in the economy for additional money. This is because, as we all know, more money chasing the same amount of goods causes inflation. To manage this, according to MMT, the government taxes money out of the economy as necessary—“draining the water.”

Recognition of this last point, according to its advocates, represents a serious contribution on the part of MMT theorists—the idea that the government isn’t collecting taxes to fund programs, but to manage inflation (when it needs money for government programs, it just turns on the spigot and runs more water into the tub).

Two things stand out. First, in the MMT conceptual framework there is no role for the Fed. Reading both Warren Mosler's and Stephanie Kelton’s available books and papers (the two economists most closely associated with MMT), that was what really stood out as differentiating them from the various post-Keynesian schools, from which they are otherwise all but indistinguishable: that MMT seems to make no distinction between monetary and fiscal policy. So, if MMT is correct, why do we still need the Fed?

Second, if, as MMT proponents claim, preventing inflation is simply a matter of ensuring that productive output rises at a consonant rate with the increase in the money supply, so that the same proportion of dollars are chasing the same proportion of goods and services in the future, it would seem to me, then, that all that needs to be shown is that letting individuals, businesses, and corporations spend their money how they want is more efficient in terms of ensuring total future production than taxing it out of existence to make way for more of its own spending. This is something that should be no more difficult to evidence than trips to the local post office and FedEx store, respectively. Far from suggesting that we raise taxes, the MMT framework seems to suggest the opposite: so does this mean we should lower taxes, too?

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The Crackdown on "Price Gouging" Helps No One, Except Politicians and the Media

04/23/2020Gavin Wax

So-called price gouging is a gimmick used by politicians and the media to rally supporters and viewers. It's almost never about predatory business practices, and it's always the people who end up paying the cost of price control laws.

Governments can't alter the laws of economics any more easily than it can the laws of physics. Yet they seemingly never cease trying, whether under some private or public pressure to skew economic outcomes.

Particularly in vogue these days is outrage over "price gouging." In this way, the political and media response to COVID-19 has been the same as it always is during hurricanes or other natural disasters.

Now, there's no telling how extreme anti–price gouging policies will get, considering that the economic lockdown continues unabated even though a record-shattering 6.6 million jobless claims have been filed as a result.

One outstandingly bad case of government and media double teaming against an honest business is what's happening to Menards in Michigan.

The hardware store got hit with two cease-and-desist letters from the state's attorney general in as many weeks. The first was for price gouging, which Menards denies, and the second was for dropping their prices too low! Advertising a sale is now a crime in capitalist America.

Jokes should be left to comedians, but sometimes economists can't help themselves. Walter Block is among the latter, but he illustrates a key truth about the government policing prices.

There are three prisoners in jail for economic crimes, the joke goes. The first inmate charged higher prices than anyone else, so he was guilty of profiteering and gouging. The second charged lower prices than anyone else, so he was guilty of predatory pricing. The third convict charged the same price as everyone else, so he was guilty of collusion.

It would be funny if it wasn’t so sadly representative of reality. So-called consumer advocate reporters accuse Menards of "taking advantage" of the crisis.

Such a misunderstanding of how prices work comes at a high cost.

In fact, it is especially vital during massive emergencies that prices be allowed to perform their function. Yes, they have a function and a purpose beyond what so many politicians and TV talking heads apparently see.

Prices facilitate communication between consumers and producers about what’s in demand and what’s in supply.

Low prices may normally be preferable for consumers, but high prices help keep masks, hand sanitizer, food, and other high-demand products on shelves longer.

Instead of the first guy in line buying up three hundred rolls of toilet paper at the normal price, a "gouged" price would leave enough for the last shopper, or even eliminate the tight-windowed long line altogether.

Additionally, "gouged" prices rarely last, as they encourage more production because there is greater potential profit. As more producers rush to meet the high demand, competition drives prices down once again.

As economist Robert Murphy puts it in The Politically Incorrect Guide to Capitalism, "When the government interferes with prices, it cripples the ability of free people to make intelligent economic decisions, just as surely as if the politicians interfered with phone lines, e-mail, or other means of communication."

Many stores now are limiting customers to one or two milk or egg cartons instead of raising prices. This may stave off higher prices temporarily, but of course, customers will shop at multiple stores, multiple times a day if demand is high enough.

Some precautions on the part of individuals are undoubtedly in order, but government intervention is at least on the verge of overreach and overreaction.

In New York City, already over 550 price-gouging violations have come to $275,000 in fines.

In Tennessee, Knox County mayor Glenn Jacobs warned his governor Bill Lee that the state was "testing the very limits" of free government. Knox County saw eight suicides within forty-eight hours after its lockdown went into effect, representing nearly 10 percent of the total suicides of the previous year.

All of this raises the question of how future governors, presidents, and legislators will act, or whether President Donald Trump will use even more executive power the next time some crisis emerges.

For now, there are many bright spots to appreciate. Some regulations are being rolled back, allowing doctors to work across state lines without cumbersome license requirements, for example. The FDA took too long, but it did finally relax its grip on the drug and medical device industries.

These positive changes must be made permanent for the sake of public health, not reinstated after bureaucrats save face.

If America regained its faith in private enterprise, not only would the urgent needs of providers and people be met, but the economic and political ramifications of what has transpired would be much more easily weathered in the short and long terms.

Social trust might even climb during a presidential election, when divisions run their deepest. The challenge for many Americans will be to snap out of complacence when they see politicians and the media attempting to undermine the price system.

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Quarantine in a Stateless Society

04/23/2020Isaac Deak

With the spread of the coronavirus, leaders across the United States are dipping into their governing toolboxes—treasure troves of both so-called legitimate and usurped power—in order to attempt to stop the virus’ spread. The federal government has suggested social distancing and quarantining, while states have simply imposed compulsory mandates. Some cry that it is a necessity for the state to intervene, and that the market could not accomplish these measures. This begs the question of whether these measures could occur in a stateless society. Although the measures seen in the present crisis are indeed forced by the arm of government, certain market actors could create the same quarantine conditions, although perhaps not to the same extent. To clarify, none of this is to express a value judgment on the effectiveness of quarantines, only that they could be implemented without a state.

First, let us define what is meant by a “stateless society.” In a broad sense, it is a society that lacks government with an monopoly on the means of coercion. A working stateless society would rest on contractural property rights. In the absence of the state, many individuals would opt to live in contractual communities with rules. In such an order, market actors such as private defense agencies would maintain order through the protection of property rights. The arguably useful aspects of government could easily be performed by market actors seeking profits and therefore striving to provide the best for the consumers.

If there were a lethal threat such as a pandemic, the inhabitants of these property rights–based communities would be unlikely to allow free entry if it were not already prohibited.  In the case of a pandemic, the incentive to restrict entry to either individuals’ property or contractual communities would be sizable, effectively leading to self-quarantine for the community.

Though individuals would not find themselves on their own property at all times, each property would have an owner, and they would be pressured to protect those on their premises. This happens on private property today. In the current crisis, nursing homes, housing those most vulnerable to the virus, were already taking precautions and restricting entry before government took action. Some retailers in the United States are implementing precautionary measures to best protect their customers, such as experimenting with “one-way” aisles in order to minimize the risk of customers crossing paths and transmitting the illness. More extreme cases include limiting the amount of shoppers in stores. In the competitive marketplace, producers have a high incentive to attract buyers, and in a pandemic, such precautions would reassure the worried public. Obviously, not all retailers are taking voluntary steps in attempt to stop the virus’ spread, and the same retailers likely would not do so in the absence of the state; however, depending on the hysteria of the masses, those who took the precautions would appear better in the eyes of consumers. If there is a high consumer demand for protection from the illness when shopping, there will be a high profit incentive for retailers to enact the protocols.

Firms specializing in protecting individuals and their property would also take steps to stop a virus’s spread. Today, the firms whose sole purpose is to mitigate losses are insurance providers, and without government their roles would become more prominent. Not only would they pay for losses, but they would have a high incentive to prevent them in the first place. A pandemic concerns illness, and health insurance companies would be the most likely to be affected. In order to maximize their profits and minimize their losses, these firms would take as many precautionary measures as possible in order to prevent a disease’s spread. Since such companies operate under contractual agreements with their customers, they could not simply raise their rates in response to the contagion. They could, however, offer lower rates new customers willing to quarantine and higher ones to those who are not. The firms could entice existing customers with less expensive alternative plans with a self-quarantine requirement. If clients so desired, they could switch plans; the old contract would be dissolved and the quarantine would be required.

It may be objected that this kind of contract would require a state-like, coercive surveillance apparatus to enforce. However, this objection is misguided and ignores the operation of the preexisting status quo: insurance comes with conditions. Suppose someone purchases insurance for their home, and their insurance provider prohibits certain objects—trampolines, for instance—on the premises for liability reasons, as is commonly done. The provider would not incessantly fly surveillance drones over the house, but if a trampoline were spotted under normal circumstances, the property owner would be in violation of his contract and would suffer the consequences. Likewise, in the stateless society, if a buyer has agreed to a condition of quarantine and accepted the cheaper rate, and then decides to have a frivolous night on the town, if caught, he will be in breach of contract. Insurance providers could theoretically track those who break the quarantine, such as by creating a reporting system among the less essential businesses. In more extreme cases, as part of the contract, the firms could require permission to track the customer’s movements in some capacity. Certainly, the methods used by the firms could become highly invasive—if not voluntary tyranny; however, in order to attract more clients, competing firms would attempt to ensure customers’ compliance with the least invasive means possible.

The concept of the insurance firm–enforced quarantine can be applied to production as well. At present, many producers seeking to attract the best workers already pay for their employees’ health insurance. The insurance provider could use the same techniques—stipulating quarantine measures in new contracts or offering alternatives at a better rate—on firm owners, except it would apply to the operation of the firm. In order to keep costs down, precautions against the disease would be encouraged, such as having employees work remotely whose jobs could be performed at home. Production might be rearranged for more space and/or isolation to prevent transmission, and in some cases, employees might be laid off. Although the methods seem unkind to workers, the employed are not working specifically for insurance benefits but for wages, and it is the company and not the worker who secures coverage. It is also important to bear in mind that the firm’s goal is to secure the best labor, and that it will therefore seek to minimize labor cuts as much as possible.

It can be conceded these market policies would not be as forceful as those of government. Some may very well accept the risks and forgo purchasing insurance. But unlike the state, these market actors are pursuing profits by solving problems through the most efficient means possible. If quarantines an effective measure, they will be pursued, and if not, they will likely be rejected. Most importantly, on the market, they will be voluntary and their effectiveness will be judged through the market process and not through state monopoly.

To summarize, the present crisis has brought about new state-enforced regulations—stay-at-home orders, social distancing, etc. Many insist that the government swinging into action is not only a necessity, but that the state is the only organization capable of implementing these measures. In actuality, in the absence of the state, different market actors could replicate many of these protocols on a voluntary basis, and on the market, their usefulness would be judged rather than forced.

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Is the Main Street Lending Program a Debt Trap?

04/22/2020Robert Aro

Have you ever noticed how some countries always seem to be having debt crises? For some inexplicable reason they are often in an economic crisis and fail to meet their debt obligations. Sometimes a nation like Argentina resorts to issuing hundred-year bonds, taking on International Monetary Fund (IMF) loans or undertaking other restructuring measures that seem “designed to fail.” Such ideas still seem foreign to many living in the wealthy developed countries, but perhaps the recently announced Main Street Lending Program will change all of that.

Under this program up to $600 billion will be made available in loans to US businesses that meet either of the following conditions:

(1) the business has 10,000 employees or fewer; or (2) the business had 2019 revenues of $2.5 billion or less.

The loans have a four-year maturity and all principal and interest payments are deferred for the first year. Since the Federal Reserve is prohibited from providing small business loans to the public, it circumvents this by lending to a Special Purpose Vehicle (SPV) which will then buy 95 percent of the loans made by eligible lenders for the purpose of the program. The US Treasury will then spend $75 billion as an equity investment in this same SPV.

Each loan will be between $1 million and $25 million (unsecured under the Main Street New Loan Facility) or between $1 million and $150 million (secured under the Main Street Expanded Loan Facility) to eligible borrowers. There are only a few attestations required, such as refraining from paying back other loan balances and the provision below, which takes us to the heart of the matter:

The Eligible Borrower must attest that it requires financing due to the exigent circumstances presented by the coronavirus disease 2019 (“COVID-19”) pandemic, and that, using the proceeds of the Eligible Loan, it will make reasonable efforts to maintain its payroll and retain its employees during the term of the Eligible Loan.

Why are $600 billion in loans being given to businesses that are going through exigent circumstances, and what is the expected default risk on these loans? Without cost-cutting measures such as layoffs and salary reductions or increasing sales, there may be little prospect that the principle can be returned to the SPV and the banks. How many will default remains unknown, considering that the loans were granted not based on any merit nor metric, but based on being distressed due to the pandemic. Like any nation unable to pay back the IMF, the entrepreneur will find that he must take on a new loan in order to pay back the previous loan.

The problem is that the Fed’s intervention completely distorts the profit and loss system required to have functioning markets. Normally a lender will lend money to a business if it believes that the business can expand, innovate, or implement some other method to increase profits. However, a profit motivation on behalf of the lender does not appear to be the case here. In a press release regarding the various loan programs being offered, the Fed said that the loans will support the economy.

It’s unclear how this will support the economy, but it is clear that the Fed will potentially increase the money supply by just over half a trillion dollars. In turn, the loans received will be pyramided by commercial banks, creating a further increase in the money supply. The funds may help keep some business afloat during this crisis and may help keep staff members employed, but without reducing costs or increasing revenues many businesses may find that the only way they can continue after recovery is to take on more debt.

It was often said that during the Great Recession that main street did not receive the support that it needed; this is no longer the case, because during the Great Lockdown “support” is finally on its way!

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The Republic of Cospaia: An Anarchist Renaissance City

04/22/2020Ellie McFarland

When in search of an example of libertarianism or so-called right-wing anarchism, many antistatists are quick to reference practical plans based on systems we already have, such voluntary insurance companies or security firms' replacement of the role of the state. But this usually doesn’t satisfy the the other side. They want a historical, material example of anarchism or radical libertarianism in practice in a specific place and time. It can be hard to name a place like that.  Most "anarchist" polities have been coercive, such as the Paris Commune. Most of them have also been communistic, like Puerto Real. Those examples don't exactly lend themselves to the point that extreme free-market capitalism and volunteerism are practical or peaceful.

But a place that well illustrates a long-lasting polity that also lacked the trappings of a state is the Republic of Cospaia, a little-known Italian city-state.

The Republic of Cospaia existed between 1440 and 1826. That's nearly four hundred years. For comparison, the Republic of Cospaia existed for fifty-two years longer than Europe has known about the Americas. It is the longest-lived, most modern, most capitalist, and most Western anarchist society to ever exist. "Western" is important because often it is not enough to site anarchic native civilizations of the Americas and Oceania. Some argue that their anarchism was a result of their ill-advanced technology or their relative isolation. This bypasses all of that. Cospaia was as developed as any other mid-rural hamlet at the time of its conception. It continued to advance at a comparable rate to surrounding areas until its death in the early 1800s. Unless one argues that all of the Mediterranean was primitive well into the nineteenth century, the argument of ill advancement holds no water.

An anarchic region does not mean a chaotic region. It also does not mean a region without a system to enact order or the enforcement of general morality. All that qualifies a place as anarchic is it lacks an entity that holds a monopoly on force. Although Cospaia did not have a state—the entity in a region that holds a monopoly on force—it had what could be called a sort of deliberative body concerned with matters of the local church, morality, and how to handle outside aggressors (of which there were surprisingly few). This body took the form of the "Council of Elders and Family Heads," and perhaps is only called a republic for that inclusion of "family heads." This body decided with whom the members of the families would associate personally and in business. That was not done through force, but through familial pressure. Despite the fact that this council was nonviolent and, importantly, not a state, Cospaia seems to have been as stable as any other region of the time. There were no taxes in Cospaia, except for the disputed existence of a "council membership" fee. But if it did exist, this fee cannot be called a tax, because inclusion in the council was voluntary. Excommunication of a family due to refusal to pay this fee would also not have been a "negative force," considering that this region was not under the control of Italy and that there was a wide escape zone for exiles around Cospaia. Not only was Cospaia technologically comparable to surrounding regions, but in the 1500s it was the key tobacco-manufacturing region in Italy.

Thanks to the Pope's policy of excommunicating anyone found smoking and Italy's tobacco ban, Cospaia (which was not Italian) was the only place in Italy able to easily manufacture it. Their economy boomed. Cospaia lacked prisons and police, and this was compensated by a robust culture of self-defense and what seems to have been a general attitude of nonaggression. This attitude was likely created by the closeness of the community (the population was between three and six hundred) and the involvement of families in governance.

What is most inspiring about the existence and history of Cospaia is that it came into existence by accident. A territorial dispute between the papal states and the Grand Duchy of Tuscany left out a small region between two rivers known as Cospaia. When Cospaia noticed that it had been overlooked, it quickly declared independence and neither the Duchy of Tuscany nor the papal states bothered to take it over. Its people paid no taxes on the outside and no internal taxes. They felt no need to have any jails, police, military, or bureaucratic nightmares to dilute their industry. Cospaia was not the result of a revolution or incrementalism to destroy the local Italian state from the inside. They were not too-late clones of the organized and planned communes of medieval Europe. Cospaia was simply the result of a community with one desire: to be left alone. Cospaia was such an astonishing accident that its "military," which amounted to nothing more than a comparably anemic Mediterranean minuteman force, never faced an outside conflict significant enough to be written about. Cospaia was so peaceful, so small, and provided so many resources to her neighbors that no one ever bothered to invade or attack.

The end of Cospaia came with its inclusion in the papal states in the early 1800s. Its motto, Perpetua et firma libertas, or "Perpetual and secure freedom," did not quite disappear. It maintained its industry and sold tobacco to foreign regions while expanding the trade to neighboring Tuscan regions, improving those economies along with its own. It remained nearly tax-free and was one of the lowest-taxed areas in Italy well into the twentieth century. With the burial of Cospaia's motto, the most robust example of practical volunteerism was buried. But Cospaia's history is not forgotten. It is the most tangible and modern example of a truly liberated society. One could say that it was the wealth and homogeneity of 1960s American communes that made them livable, and that the rurality and isolation of natives makes their relative anarchism a byproduct of "primitivism." But no one can say the same of Cospaia, a tiny nation on a hill, as advanced as any other Renaissance nation and the most profitable tobacco market in Italy.

Cospaia was not successful despite its freedom, lawlessness, and wide-open markets, but was successful because of those things. A voluntary coalition of community figureheads led Cospaia past its status as a mild and forgotten region to become the biggest tobacco producer in Italy for almost three centuries. Its existence was the natural result of the state leaving the region behind. This state of nature, contrary to Hobbes, was peaceful and more prosperous than the condition of its prohibition-stricken neighbors. Cospaia is by far the best example in favor of the practicality of libertarianism, capitalism, and anarchism. It is a place someone could travel to, touch, and experience. It is a utopia made real, because libertarianism is not utopian; it is perpetual and secure freedom.

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This Is Why the May Oil Contract Price Went Negative on Monday

04/21/2020Robert Wenzel

Futures oil contract trading is generally done by two different groups, speculators and commercial hedgers.

Speculators are essentially taking a position on where oil will be at a future time. If they think it will go higher, they will buy an oil contract to profit from what they expect, a higher price. If they believe that oil will be lower, they will sell (short) oil contracts to profit from the decline they expect.

Commercial hedgers are a different breed. They are hedging positions they have as part of their business. For example, an oil producer knows that he is going to produce x barrels of oil in a given future month. He likes the current price of that future month's contract and so sells some oil contracts to hedge his production, essentially locking in the money he will receive for that oil. On the other hand, a commercial airline may hedge a future oil purchase for its planes by buying oil in a futures contract and locking in the price it will pay.

Because of the lockdown, the demand for oil in the short term has collapsed. Storage facilities, for the most part, are filled with oil; there is nowhere to put it. Airlines have no incentive to take delivery. and speculators have no storage facilities at which to lay off their long positions. Bottom line: there is absolutely no place to put the oil that will be delivered on the May contract, which closes tomorrow.

The only alternative is to buy out the sellers on the opposite side of the contracts. If they are hedgers producing oil, they have storage in the sense that their production is stored somewhere now. But here is the kicker: the hedgers have no incentive to be bought out of their contracts at positive levels under the current circumstances.

Below is the trading in the May oil futures contract since the start of the year, when it first became a high-volume active contract, up until just before the time the contract fell into negative territory yesterday by $37.63 a barrel, or down 292.66 percent on the day.

Oil Prices

As can be seen, a lot of trading occurred around $25 per barrel and then earlier at $50 a barrel.

So if a hedger sold his oil in the May futures market at $25 per barrel, he has no incentive to allow the contract to be bought from him unless the buyer is willing to pay him more than the $25 per barrel he received.

The buyer is trapped. Normally, with plenty of oil storage, this wouldn't occur, because there would be plenty of bidders for the oil who would be willing to put it in storage. But with storage facilities filled, there is nowhere to put the oil. It has to stay where it is, with the hedger who first hedged his production. But since he can't sell his production elsewhere because of filled storage facilities, the hedger is not going to allow his contract in effect to get canceled unless he gets more than what he would receive for the oil based on the price he sold it at in the May futures market. That's why so much oil changed hands yesterday in negative territory, especially in the –$35 range. That's $10 per barrel roughly above where a lot of hedgers likely hedged.

With all the storage facilities filled, it would be a nightmare for a buyer to actually end up being forced to take delivery. He would face enormous storage penalties. His only option is to buy the contract back from the hedger, who as we can see has no incentive to settle the contract anywhere near positive territory. Thus, the buyer has to pay big time to get rid of his oil. That is, incentivize the original seller to keep his oil. A 50 percent incentive above the original hedge price appears to be the price.

I want to emphasize that this is a short-term phenomenon, with the economy locked down and easily accessible storage filled. Over time, more storage will come online and once the economy is opened up again, the backup in oil will drain. Indeed, at present the market is in contango, an unusual situation in which the farther a contract is in the future, the higher the price is for oil.

The current price for the August contract is a positive $29.20 per barrel. The March 2021 contract is trading at a positive $34.59 per barrel. That is, no one expects producers to be producing oil at a negative price. This is not what is going on currently. There is a sudden bottleneck at storage facilities because of the lockdown, with delivery about to be scheduled to May futures contract holders who have no place to put the oil.

Finally, the real takeaway here is that oil producers are not producing oil they can't sell—they would stop that in a minute. Rather, speculators are being faced with the delivery of oil that they have no capacity to store and thus must pay to get the delivery obligation removed at a time when there are few that can handle that obligation.

This article originally appeared at EconomicPolicyJournal.com.

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