Wave of Saudi Crude Imports Could Open Door for Wave of US Exports

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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The Left Understands Taxation Is Theft, That's Why They Support It

04/16/2021Peter St. Onge

On March 18, Joe Wiesenthal of Bloomberg Markets had MMT economist Stephanie Kelton on the show. If you’re not familiar with MMT, they think governments should print more money because deficits aren’t a big deal. At one point in the show, Wiesenthal asked, “If we don’t need to worry about deficits, why do we have taxes?” Kelton’s response was illuminating.

Now, the traditional excuse for taxes is, paraphrasing Oliver Wendell Holmes, that they are the “price of civilization.” Skeptics point out that historically societies with very low taxes were often far more civilized—think the Dutch Golden AgeIslamic Golden AgeVictorian England, the pejoratively named “Gilded Age” in American history—that thirty-year golden age when almost everything useful was invented. And yet throughout that latter period federal receipts were one-fifth what they are today.

Why so much civilization? Because much of what governments do today was done by charities or businesses competing for customer dollars instead of seizing their budgets in taxes. When doctors, firefighters, and schools have to satisfy customers, things get quite civilized.

Still, even if we accept a “night-watchman state” argument for, say, national defense or salaries for Supreme Court justices, it gets tricky if government can simply print up the fresh money to pay for all that civilization.

Kelton’s answer? Taxes would still be needed, because they make us poor. And because they can punish people she doesn’t like.

Specifically, Kelton likes that taxes “remove dollars from our hands, so we can’t spend them,” leaving more purchasing power for the government. So taxes make the people poor, and that’s a selling point to her, presumably because she thinks governments are really good at lifting people out of poverty. Anybody who’s spent time in America’s inner cities, where government money is pretty much the only money, might disagree.

Ah, but it’s not just about spending our money more wisely than we ever could. Kelton adds two secondary reasons she loves taxes: to punish particular people by redistributing their money, and to punish people for doing things she doesn’t like. Such as failing to buy energy-efficient appliances (no, really). In other words, social engineering with carrots for your friends, sticks for your not-so-friends.

I should add that libertarians completely agree with Kelton here—taxes are indeed for spreading poverty and for punishing people you don’t like. That’s why libertarians, being kind and generous, oppose taxes.

Meanwhile, it’s nice to know we all agree that taxes have nothing to do with civilization; they are for destroying with a side of discriminatory punishment.

Image source:
Flickr | Images Money | https://www.flickr.com/photos/59937401@N07/5856708903
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The Fed Does 60 Minutes ... Again

04/15/2021Robert Aro

Almost one year ago today, Federal Reserve Chair Jerome Powell appeared on 60 Minutes explaining to the world that as a Central Bank, they have the ability to “create money digitally.” Sadly, it seems the only change since then has been the size of Fed’s balance sheet. Over the weekend, Powell reunited with 60 Minutes where he shared his views and developments of the economy in the face of COVID.

Powell said many contentious claims in the interview. Calling the CARES Act “heroic” is one example. Another:

Congress, in effect, replaced people's income, kept incomes, kept them in their homes, kept them solvent, kept their lives together…

He discussed the usual fare such as the importance of maximum employment, inflation targets, the Fed’s work on the digital dollar, and vaccinations, of which Powell said he received two doses already. By far, the most interesting was when the question of the 2% inflation target came up:

SCOTT PELLEY: Getting back to your inflation target, why 2%? Why is that the magic number?

In a previous article, I wrote about the Origins of the 2% Inflation Target, how it came about arbitrarily then popularized across the world. Unfortunately, it’s a goal made with absolutely no merit or basis. Nonetheless, everyone is entitled to their opinion. Here is the one given by one of the most powerful men in the world:

JEROME POWELL: Two percent is what central banks around the world came to, you know, over the last really 40 years. It is the standard that all banks target. And you may really be asking, "Why not zero?" And the reason is that interest rates--every interest rate-- includes an estimate of future inflation. So if you're lending money, you're going to get paid for future inflation. You're also going to have a real return. And if inflation were to be zero rather than 2%, then interest rates would be 2% lower, by definition. And what that would mean is that central banks, including the Fed, we have much less room to cut rates and support the economy-- when the economy turns down.

He notes 2% is the standard, and “all banks” target 2%, but doesn’t explain why... Powell quickly changes the question to “why not zero?” then answers his own question by claiming “every interest rate includes an estimate of future inflation,” of course, purposely vague, given inflation isn’t identified. There are other concerns, such as how the Fed sets its interest rates to account for future inflation, what causes said inflation, why not 3% inflation, etc., to make a list of the follow-up questions Scott Pelley should have inquired.

After a few more explanations, Powell settles on the idea that a 2% inflation rate influences interest rates, which should be somewhat high so interest rates can be cut in the future, “when the economy turns down.”

Unfortunately, the problem with this type of interview is that it doesn’t get to the heart of the matter. When asked about why 2% inflation, there was no follow up to challenge Powell. Other than trying to explain the 2% target, very little was said that didn’t echo Powell’s normal stance when addressing the public.

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Does the FOMC Even Believe What It's Saying?

04/15/2021Robert Aro

The latest Federal Open Market Committee (FOMC) meeting minutes shows a series of questionable ideas. Other than the people in the closed door meeting, it’s difficult to know whether they believe what they discuss, or just go through the motions, attempting to stave off economic collapse for as long as possible.

With just a few quotes, the direction the Fed/US Government is taking us becomes clear:

Alongside the rise in U.S. yields, broad U.S. equity price indexes increased moderately, with the largest gains in cyclically sensitive sectors.

GDP also looks to be on the rise:

The information available at the time of the March 16–17 meeting suggested that U.S. real gross domestic product (GDP) was expanding in the first quarter of 2021…

In the first quarter of 2021:

Consumer spending appeared to be increasing in the first quarter at a pace considerably faster, on balance, than in the fourth quarter of last year.

But not only is spending on the rise:

In addition, the personal saving rate jumped to an even higher level in January, and ongoing gains in labor earnings along with further fiscal support pointed to additional increases in accumulated household savings.

Per inflation calculations:

Real PCE expanded strongly in January after declining over the preceding two months, with spending likely boosted by federal stimulus payments sent out in early January.

Yields, GDP, the stock market, spending, savings, inflation, on the rise; overall debt levels, the money supply, and the Fed’s balance sheet are also on the rise. But we should pay attention to federal stimulus payments as well as central bank accommodation, which, you guessed it, are on the rise.

It’s strange that for all the central bank and government inflationary schemes, the Fed will still make claims such as:

Improved U.S. economic growth prospects and optimism about the eventual lifting of social-distancing and related restrictions globally were major drivers of asset prices abroad, spurring sizable increases in sovereign yields in advanced foreign economies.

For some peculiar reason it seems to be everything except the increase in money supply, debt levels, and currency debasement as the cause for asset prices abroad.

Naturally, other central banks reacted to this:

In response to rising yields, the Reserve Bank of Australia increased its bond purchases, and the European Central Bank indicated it would increase the pace of its bond purchases going forward.

It’s not just in America. The same interventions are being played out the world over under the guise of economic policy aimed to help the economy, or worse, achieve arbitrary employment and inflation targets. The notion that governments and central banks can spend to prosperity is highly regarded as economic dogma.

Of all the people in the meeting, with the years of experience and credentials between them, surely at least one of them would question the sustainability of an economy where everything rises due to central banks and government increasing the money supply, while simultaneously taking on debt, for no clear purpose other than obtaining stimulated economic effects.

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The Benefits of Being Politically Correct

04/13/2021Lipton Matthews

Stories depicting the savagery of cancel culture are becoming increasingly popular. As expected, many invoke political correctness as the genesis of this development. But rather than looking for simple explanations, we must ponder why people conform to politically correct opinions. In truth, conformity has a biological basis. Humans are social creatures who thrive on intimate connections. Hence conforming to social conventions by expressing politically correct assumptions is one way to signal membership in a community. As such, conformity protects people from the emotional scars of rejection.

Indeed, conforming to social norms like respecting property rights and being polite yields favorable results. Without a doubt, positive conformity is crucial to the success of our species. Yet retrograde conformity, indicated by the fame of ideas like white privilege and systemic racism, can foster destructive results. Preventing the growth of retrograde conformity is challenging, because the success of an idea is not hinged on intellectual rigor.

Like biological organisms, an idea's receptivity is linked to its capacity to increase social fitness. People imitate each other, so ideas are reproduced mimetically. Therefore, the prosperity of an idea is driven by conformity bias. As a result, heterodox ideas even if they are rigorous cannot compete with mainstream views. Moreover, researcher Robert Henderson points out that the ability of socially accepted beliefs to increase social bonds explains the appeal of cancel culture: “Cancel culture strengthens social bonds…. People enjoy uniting around a common purpose. They derive satisfaction from coming together against a perpetrator. They enjoy the solidarity it provides.”

Further, sanctions are created to stifle controversial claims and are reinforced by institutional protectionism. When journals and newspapers retract articles for failing to affirm orthodox beliefs, this is emblematic of institutional protectionism. Unfortunately, such actors may think that they are acting morally by shielding the public from offensive views. Similarly, like conforming, we are biologically predisposed to acting morally. So, gatekeepers may contend that allowing the free flow of ideas could act as an incentive for their appropriation by rogue actors.

However, this contention is misguided. In the absence of a robust market for debate, society suffers from intellectual stagnation and citizens are forced to substitute rhetoric for evidence. For instance, if researchers could study racial differences without backlash, we would be in a better position to cater to the diverse needs of the population. This sentiment was articulated in a 2002 paper published in the Journal of the National Medical Association: “There is good evidence to show that therapeutic substitution of drugs within the same class places minority patients at greater risk. This is because effectiveness and toxicity can vary among racial and ethnic groups.”

Another reason for the success of politically correct beliefs is that they confer psychological benefits. By promoting the rightness of mainstream narratives, elites can present themselves as morally superior and cement their influence in society. Economist Jennifer Roback refers to this phenomenon as “psychic rent-seeking.” Because of the social rewards derived from institutional protectionism, elites are unlikely to tolerate intellectual innovations, since they can undermine institutional authority.

But the cure for political correctness is to be found in a free market for ideas. Economic historian Joel Mokyr rightly contends that the free market for ideas led to the discoveries nurtured by the Enlightenment: “European political fragmentation created the environment in which dissident and heterodox opinions could be put forward with increasing impunity. Had a single, centralized government been in charge of defending the status quo, many of the new ideas that eventually led to the Enlightenment would have either been suppressed or possibly never even proposed.” Only a free market for ideas can solve the problem of political correctness and prevent its pernicious effects.

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Is Price Gouging a Problem?

Is price gouging wrong? For many, this practice does not exactly seem to be ethical. So, there is a moral angle here which suggests that raising prices of goods such as toilet paper and bottled water when a hurricane cuts off supply—and forces the market into a shortage—is not the most humane practice.

The economic angle, which is more important for policymaking, views price gouging as a regular supply-side response to a shock. The economics around this practice suggests that price gouging is not only reasonable, but it also serves many crucial economic purposes.

Why Price Ceilings Are Illogical

In free and competitive markets, prices are signals. If you have ever laid eyes upon the supply and demand graph found in Econ 101 textbooks, you understand what I speak of. Consumers demand goods based on price. Suppliers produce them after being encouraged or discouraged by the same. When governments step in and cap prices during emergencies, this signaling property of market prices under this free market mechanism is heavily distorted. Consequently, people lose the incentive to ration resources when they need to be rationed the most.

When governments jump in to “remedy” shortages during crises by enacting anti-price-gouging laws, they create unintended consequences such as hoarding. If I am a consumer who learns that a pack of twelve rolls of toilet paper has been capped at eight dollars in a situation where an unhindered equilibrium price could easily be twenty dollars for each such pack, I have every reason to rush to stores and buy many more rolls than I could use in a month, assuming my digestive system remains agreeable. What would happen if all consumers in my area made similar runs to stores? I hope this question drives the point closer to home.

You guessed correctly. Now local shelves are being emptied even faster of toilet paper rolls, and the shortage that could have been managed and mitigated has been aggravated! If toilet paper rolls are indeed 20 dollars a pack in a “disaster” market without a government-imposed cap, people will ration their stocks more judiciously and buy only what they need. Stores will be able to serve more people, thus alleviating the problems caused by the shortage.

People will spend 20 dollars on a roll only if they need it, rather than panic buying an unscientific quantity at capped prices. In trying to help disaster-struck populations, the government leaves them worse off by implementing anti-price-gouging rules.

Policymakers also need to understand that nothing is stopping a handful of people who get to the stores first from buying out the entire stock and selling them to the unfortunate majority at prices much higher than what these consumers would have paid in an unfettered local market. Since these individual “profiteers” can easily find a way to price gouge despite formal price caps, it is much better to let stores distribute essential items at a competitive equilibrium through formal channels, even if it is at a higher equilibrium price.

Supply-Side Arguments

A description of consumer responses to the capping of prices ensured by anti-price-gouging laws does not complete the picture. We must consider the supply side of production and supply during crises such as hurricanes to fully understand why price gouging is a natural, legitimate, and beneficial economic adjustment. When prices rise, producers are motivated to produce more. This increase in production, if you recall, can be observed by moving up along the supply curve.

What happens when the price of an essential item is capped in a region that needs that item much more than others? If a production manager learns of this situation, she has no economic incentive to increase the supply of that much-needed good to that particular region. Without a legal intervention that imposes a price ceiling, higher prices would naturally motivate suppliers to supply more, thus easing shortages in desperate regions.

Prior Research and Empirical Evidence

The scope and length of this article limit my ability to guide readers through a quantitative process of measuring the harm caused by legislation against price gouging. However, I would like to defer to research published by academics with a much deeper knowledge of economics and policy than I can claim to have.

Montgomery, Baron, and Weisskopf noted in a paper published in 2007 in the Journal of Competition Law and Economics that, in cases that were thought to be the product of deliberate attempts to engage in price gouging, it was actually the case that  “price increases were due to the normal operation of supply and demand and not market manipulation.”  The authors were evaluating the aftermath of hurricanes Katrina and Rita in drawing conclusions regarding anti-price-gouging laws.

An analysis of the two-month period of price increases following Rita and Katrina revealed to Montgomery, Baron, and Weisskopf the economic benefits that were realized from a lack of anti-price-gouging laws at the time in 2005. The economic damages in presence of these laws, the authors estimated, would have been between $1.5 billion and $1.9 billion.

Of course, the morality of increasing prices during floods, hurricanes, or other emergencies can still be questioned, but when governments target price gouging, morality is not the backbone of their legislation. Since economic well-being is the intended target of these anti-price-gouging laws, the best way for these laws to accomplish their goals is to stop existing. We can keep debating whether said price manipulations are the right thing to do, but at least we can have these debates without the discomfort of cutting our paper towel rolls in half (or into thirds in some cases) to fulfill our toilet paper needs.

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From Christianity to Black Power, Rothbard Offers a Unique View

04/08/2021Lipton Matthews

Judged by the sheer quality and volume of his intellectual output, Murray Rothbard was a genius. Though we reflect on the ingenuity of his peculiar intellect—we must never forget that Rothbard was the master of defying stereotypes. Unfortunately, many assume that libertarians are hostile to Christianity, but it was Rothbard who admitted that “[t]he greatest and most creative minds in the history of mankind have been deeply and profoundly religious, most of them Christian.” Rothbard also informed readers that the Spanish Scholastics made a pivotal contribution to economics.

Christianity

Rothbard in several articles and books refuted the uncharitable characterization of late Scholasticism as intellectually barren. In his article “New Light on the Prehistory of the Austrian School,” Rothbard asserts that we owe religious thinkers a debt of gratitude for laying the foundations of modern economics. Despite popular belief, late medieval thinkers and not Adam Smith offered the first systematic justification for modern economic theories. Rothbard writes of the Scholastics: “It was the sixteenth-century Spanish Scholastics who developed the purely subjective and profree-market theory of value. Thus, Luis Saravia de la Calle denied any role to cost in the determination of price; instead, the market price, which is the just price, is determined by the forces of supply and demand, which in turn are the result of the common estimation of consumers on the market. Saravia wrote that 'excluding all deceit and malice, the just price of a thing is the price which it commonly fetches at the time and place of the deal.'”

Notably, the Spanish Scholastics were remarkably sophisticated in applying supply and demand analysis to money. Rothbard writes of the Dominican Martín de Azpilcueta Navarro: “Citing previous Scholastics, Azpilcueta declared that “money is worth more where it is scarce than where it is abundant…. Because “all merchandise becomes dearer when it is in great demand and short supply, and that money, in so far as it may be sold, bartered, or exchanged by some other form of contract, is merchandise and therefore also becomes dearer when it is in great demand and short supply.”

This analysis is illuminating because Azpilcueta provided relevant examples: “We see by experience in France, where money is scarcer than in Spain, bread, wine, cloth, and labour are worth much less. And even in Spain, in times when money was scarcer, saleable goods and labour were given for very much less than after the discovery of the Indies, which flooded the country with gold and silver. The reason for this is that money is worth more where and when it is scarce than where and when it is abundant.”

The Black Power Movement

Rothbard was such an objective analyst that he could even appreciate the political aspirations of the Black Power movement. Unlike many on the right, he noted that “the goals and means of civil rights were statist and Liberal to the core.” Rothbard argued that the failure of civil rights to change the hearts of men resulted in an awakening among black activists, who recognized that they could not force racists to tolerate their demands. As a result, instead of lobbying for integration, these leaders thought that it would be prudent for blacks to create communities free of white control, and Rothbard supported them in this regard in a popular essay: “The Negroes began to turn, and turn swiftly, from the old Liberal ideal of compulsory integration to another tradition that had previously lingered, underground and un-respectable, at the core of the Negro community. This was the idea of black nationalism, an idea that had always appealed, not to the educated and articulate Negroes, but to the poorest inhabitants of the ghetto. The black nationalist idea came to the fore in the 1920s with the phenomenally popular Marcus Garvey.”

Rothbard felt that the circumstances of the 1960s justified black separatism: “For a time many conservatives were enthusiastic about black nationalism…. The conservatives were overjoyed with the nationalist and Muslim emphasis on Negro self-help, thrift, dignity, and pride, in contrast to the old ideals of coerced integration from above. But there is one thing that the conservative proponents of black nationalism overlooked: self-help, pride, thrift, Negro businesses, etc. are all well and fine. But they cannot hope to flourish within the context of the black reality in America: permanent oppression by the white 'power structure.' None of these good and libertarian things can be achieved without first and foremost, getting the white-run U.S. and local and state governments off the backs of the Negro people.”

Nationalism and National Liberation

Although libertarians frequently condemn nationalism, Rothbard held that in some cases nationalism can result in the liberation of oppressed groups. As he contends in a 1966 essay: “There are two contrasting types of nationalism: a desire to liberate an oppressed nation from the chains imposed by another nation (a movement for 'national liberation'); as against a desire to aggress against other nations and impose one's own national domination upon them…. One is a libertarian form of nationalism, the other an invasive, profoundly anti-libertarian form. A Negro nationalist movement in present-day America is a movement for national liberation; any white insistence on thwarting such a movement is an example of white imperialism. Such are the qualitative differences within the concept of nationalism.”

In his radicalism, Rothbard posited that black Americans were a colonialized people and needed to be free from the clutches of the state. Specifically, urban renewal activists and school administrators are singled out for criticism in his controversial piece on black power. Rothbard details the negative effects of urban renewal on black communities: “All good Liberals, not so long ago, used to admire urban renewal as a means of helping the poor and bringing esthetics to the city. Now, radicals and some conservatives are beginning to agree (in another burgeoning form of 'Left-Right' coalition) that urban renewal is really a vast subsidy to the real estate interests at the expense, not only of the taxpayer which was always evident, but also of the poor themselves, who are summarily kicked out of their homes by the urban renewal bulldozer, and forced elsewhere, redoubling the slums there. If they try to move into the new urban renewal housing, they find that there is far less space available, and at much higher rents than they were paying before. And so, more and more people are coming to recognize 'urban renewal' is really 'Negro removal'—for urban renewal has been concentrated in the Negro ghetto areas.”

He is equally critical of administrators: “The compulsory attendance laws force all of the youth of the country, regardless of their talents or inclinations into this vast prison-system, and the teachers and administrators are their guards and wardens. The oppression lies much the heaviest in the urban Negro areas, where so many children are not inclined toward schooling and where racism as well as hatred for working-class mores are given full rein by the school staff, armed with the power of compulsory education to force their charges to stay in school. No wonder that Negro youth are embittered by their enforced stay in the system.”

So, Rothbard continues to confound even in death. For example, the average person who has not read his publications would assume that he had no interest in Christian philosophers. And as expected people under the spell of liberal delusions believe that he was a racist without assessing his ideas. However, Rothbard was a giant among men and an exceptionally articulate defender of black sovereignty.

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What Clarence Thomas Gets Wrong about Big Tech

04/08/2021Jeff Deist

Listen to the Audio Mises Wire version of this article.

Supreme Court Justice Clarence Thomas's recent concurring opinion in the Biden vs. Knight decision sent hopeful tremors across conservative legal circles and drew condemnation from libertarians. Was Thomas finally laying the groundwork for regulation of Big Tech, which conservatives correctly view as both deeply biased against them and actively biased in favor of left-wing causes? 

At first blush, the case primarily concerned First Amendment questions about whether former president Donald Trump (while in office) could block certain individuals or groups from following his Twitter account.1 The Blockees argued that a sitting president should not be able to prevent access to "news" he creates on social media, especially when particular tweets relate to official government business. Yet if Twitter is indeed a constitutionally protected "public forum," how does the company get away with deplatforming the president of the United States?

No clear answers from the court were forthcoming: since Trump is no longer in office, the court remanded the case back to the Second Circuit to dismiss on grounds of mootness. But Thomas took the opportunity to move past any free speech questions and make a much broader case for Congress to radically rewrite regulations for the modern digital space. In his words, the "principal legal difficulty that surrounds digital platforms—namely, applying old doctrines to new digital platforms is rarely straightforward." But in the same concurrence, his language appears to argue simply for the application of existing legal doctrines, namely those surrounding antitrust, common carriers, and public utilities regulation. Thus there is a tension between his view that new thinking is required and his default to statutory or bureaucratic approaches to defeat what he sees as de facto tech monopolies:

The analogy to common carriers is even clearer for digital platforms that have dominant market share. Similar to utilities, today’s dominant digital platforms derive much of their value from network size. The Internet, of course, is a network. But these digital platforms are networks within that network. The Facebook suite of apps is valuable largely because 3 billion people use it. Google search—at 90% of the market share—is valuable relative to other search engines because more people use it, creating data that Google’s algorithm uses to refine and improve search results. These network effects entrench these companies. Ordinarily, the astronomical profit margins of these platforms—last year, Google brought in $182.5 billion total, $40.3 billion in net income—would induce new entrants into the market. That these companies have no comparable competitors highlights that the industries may have substantial barriers to entry.

Size and dominance in the provision of "essential services" are arguments we've heard against everything from railroad trusts to Ma Bell. Yet Thomas's common carrier analogy is far less accurate for today's search and social media platforms than it was for tech companies at the birth of widespread internet adoption. In the 1990s, when Congress passed the Communications Decency Act, telephony was the prevailing regulatory model. Internet service providers like AOL provided "pipe" in the form of fiber optic cable, akin to a utility providing water or electricity. Satellite and cellular ISPs would come only later. Search engines and browsers like AltaVista were the on-ramps to this information superhighway. Email companies like Hotmail provided instantaneous worldwide text communication across the old telephone networks. These early internet firms bridged the gap between old analog systems and the emerging digital networks we take for granted now.2 But unlike the AOLs of yesteryear, the biggest tech players today mostly own cloud servers and endless lines of software code, brought to life via websites or social media platforms. Yes, servers can crash due to traffic. But for the most part companies like Facebook and Twitter resemble neural networks more than pipelines. And who knows what the rapidly evolving technology landscape will look like even five or ten years from now?

This is precisely why a sclerotic federal bureaucracy ruling over Silicon Valley is the last thing we need, despite Thomas's valid concerns (in my view). Contra the CDA, and contra Justice Thomas, common law tort and contract actions are the pragmatic and just approach to address harms caused by tech companies. As I argued in "A Tort Law Approach to Fighting Big Tech," long-standing legal concepts like equitable estoppel, conversion, fraud, and waiver are available and malleable. Libertarian legal theory—rooted in natural law, property, and restitution—relies on common law "discovery" rather than positive law edicts. Ever-evolving common law, highly temporalized and localized, provides the best mechanism for determining what actions by tech companies should give rise to legal liability. Stealing a horse in 1800s Tombstone, Arizona, is different than stealing a horse in 2021 Middleburg, Virginia: the former may have left the victim dead in the desert and the perpetrator ordered whipped by an exceedingly unsympathetic jury. Today, deplatforming a celebrity from social media or unbanking a small business owner may leave them metaphorically stranded in the desert. In both cases societal and technological evolution should compel us to adjust our ideas of harm and proportionality. Shouldn't common law, rather than rigid and highly political statutory or regulatory frameworks, give us better outcomes?

The larger question for libertarians is whether their existing conceptions of property rights, harms, torts, and free speech still work in a thoroughly digital era. Principles may not change, but facts and circumstances certainly do. Rothbard's strict paradigm for what ought to constitute actionable force, especially as discussed in part II of The Ethics of Liberty, requires some kind of physical invasion of person or property. In doing so, Rothbard necessarily distinguishes between aggression (legally actionable) and the broader idea of "harm." The former gives rise to tort liability in Rothbardian/libertarian law; the latter is part of the vicissitudes of life and must be endured. Theorists like Professor Walter Block and Stephan Kinsella have expanded on this "physical invasion" rule, applying it to everything from blackmail to defamation to (so-called) intellectual property. Aggression against physical persons or property creates a legally actionable claim, mere harm does not. 

But Rothbard's bright-line rule seems unsatisfying in our digital age. If anything, the complexity of modern information technology and the pace of innovation make the case against bright-line tests. For one thing, the sheer scale of instantaneous information ought to inform our view of aggression vs. harm. A single (false) tweet stating "famous person X is a pedophile" could reach hundreds of millions of people in a day, ruining X's life forever. This is a bit worse than a punch to X's nose in a bar fight, to put it mildly. Moreover, physical trespass against property takes on an entirely different form when said property is intangible, e.g., Twitter's platform and servers. There is a difference, at least in scale, between Donald Trump occupying a tiny sliver of data storage (at almost no additional marginal cost to Twitter) and Donald Trump occupying the lobby at Twitter’s headquarters. Again, surely the best argument is to let naturally evolving common law grapple with these questions. Yes, we don't have private common law courts, and yes, we have a gargantuan statutory overlay at both the federal and state levels. But we ought to argue for the underlying principle of evolving, discovered law—and advocate for legislatures to get out of the way of private litigating parties and juries.

Common law tort and contract doctrines, not a hopelessly befuddled Congress or agency bureaucrats, can regulate Big Tech. But libertarians and conservatives should broaden their conceptions of tort and contract remedies, and support the evolution of what constitutes harm in a digital era. "Private companies" that openly deplatform, impoverish, and unperson dissident voices are waging a war of attrition. Those inclined to fight back should look to courts rather than legislatures, and they don't need novel legal theories to do so. Common law tort and contract will do just fine.

  • 1. In what universe does "Congress shall make no law" apply to presidents? Our universe, apparently. And is political speech really much of a virtue, in the sense of securing individual liberty? Property rights, to the extent they are respected, anyway, yield very tangible benefits for average people. It is less clear whether so-called political rights (voting, speech, petition) have done much good for the modern West at all—look at the people who keep getting elected, for starters!
  • 2. Since all of this was new, the authors of the Communications Decency Act reasonably decided these nascent companies should not be legally liable for the misdeeds or defamatory content produced by their users. After all, if two individuals enter into a criminal conspiracy over AT&T's phone network, we don't charge AT&T as a coconspirator. And in stark contrast to the social media companies of today, early ISPs and search engines exercise almost no oversight over content whatsoever, much less editorial oversight. They were truly neutral platforms.
    Still, the CDA's chief mechanism for promoting a largely unregulated internet—Section 230—not only provides certain classes of tech companies with immunity from federal suits, but also preempts certain kinds of cases from being heard in state courts. This was and is constituionally shaky, as Congress has no business telling state courts what kind of lawsuits they may hear.
Image source:
Cknight70 via Flickr
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Rewinding the Mainspring of Human Progress

04/07/2021Gary Galles

Henry Grady Weaver worked through many jobs on the way to becoming director of customer research for General Motors, which landed him on the November 14, 1938 Time cover. But virtually no one remembers that. Now he is best known for his short 1947 bookThe Mainspring of Human Progress, that the Ludwig von Mises Institute’s website called “the true story of progress for the human race with acute understanding of the fundamental cause: freedom itself,” which led to the fact that now “Several generations count this book as the very one that started an intellectual revolution.”

The book had an interesting background. It draws heavily from Rose Wilder Lane’s 1943 The Discovery of Freedom: Mans’s Struggle Against Authority. It became a very influential book, ranking 67th in a 1999 Modern Library readers poll of the best nonfiction books. But Lane was not satisfied with it, so despite continuing interest, she refused to allow it to be reprinted after only 1000 copies were made. That continuing interest led Weaver to ask Lane’s consent to use her ideas, but retell it in his own way, which she granted. Ironically, even though Mainspring was thus what John Hood called “an amateur’s paean to freedom and individual ingenuity,” it ranked 48th in the same poll.

Reader comments about Mainspring have included “Nothing I say will adequately describe how awesome this book is,” “If I ever gave a list of books people needed to read before they die, this would be in the top three,” and “Best book I’ve read in 5 years. A concise and condensed summary of recent Western civilization cultural ideas.” Such raves justify giving it some serious attention. As a beginning, consider some of its most insightful words.

  • Most of the major ills of the world have been caused by well meaning people who ignored the principle of individual freedom, except as applied to themselves…professional “do-gooders”… who would ruthlessly force their views on all others--with the abiding assurance that the end justifies the means.
  • What is the human purpose in society?...it is a matter of benefitting yourself by getting something you desire from another person who, at the same time, benefits himself by getting something that he desires from you…the peaceful exchange of benefits, mutual aid, co-operation--for each person’s gain. The incalculable sum of all these meetings is human society, which is simply all the individual human actions that express the brotherhood of man.
  • To discuss the welfare and responsibilities of society as an abstract whole…is an oversimplification and a fantasy. The real human world is made by persons, not by societies. The only human development is the self-development of the individual person.
  • Even today, many civilized persons…have harbored the pagan belief that the sacrifice of the individual person serves a higher good…in the false ideal of selflessness--which emphasizes conformity to the will-of-the-mass--as against the Christian virtues of self-reliance, self-improvement, self-faith, self-respect, self-discipline, and a recognition of one’s duties as well as one’s rights. Such thinking is promoted under the banner of social reform, but it gives rise to the tyrants of “do-goodism”…who slaughter…the very people who look to them for the more abundant life and for protection against harm.
  • It is highly presumptuous of any mortal man to assume that he is endowed with such fantastic ability that he can run the affairs of all his fellowmen better than they, as individuals, can run their own personal affairs.
  • Every living thing must struggle for its existence, and human beings are no exception. The thin defenses of civilization tend to obscure the stark realities; but men and women survive on this earth only because their energies constantly convert other forms of energy to satisfy human needs, and constantly attack the nonhuman energies that are dangerous to human existence.
  • In the last analysis, there can be no progress except through the more effective use of our individual energies, personal initiatives, and imaginative abilities…
  • It all comes back to the effective use of human energy…the decision to act and the action itself are always under your own control.
  • Your freedom of action may be forbidden, restricted, or prevented by force…But the fact remains that no amount of force can make you act unless you agree--perhaps with hesitation and regret--to do so.
  • Individual freedom is the natural heritage of each living person.
  • Freedom cannot be separated from responsibility.
  • Your natural freedom--your control over your own life energy--was born in you along with life itself. It is a part of life itself. No one can give it to you, nor can you give it to someone else. Nor can you hold any other person responsible for your acts. Control simply can’t be separated from responsibility; control is responsibility.
  • Man has enormous powers…to make new things and to change old things into new forms. He not only owns property but he also actually creates property…without ownership, there is little incentive to improve it.
  • Free minds are inventive minds.
  • Overlords develop their ambitious plans, enforced by the firing squad and supported by huge predatory armies…but they are contradictory to the nature of human energy. They are always at the expense of individual initiative; they always result in oppression, leading to human degradation and war.
  • In America…Free men were to have an opportunity to live their lives, plan their own affairs, and work with one another--not under the lash of coercive authority but under the discipline of enlightened self-interest and moral responsibility.
  • Americans had no overall plan. They had something more important. They had personal freedom to plan their own affairs; and the avalanche of human energy resulting from that freedom.
  • This country had been covered by...a tumultuous multitude of free men…living under the weakest government in all the world. The people who had been left to shift for themselves--who had learned the lessons of realism…were creating a new world.
  • Unrestrained majority rule always destroys freedom, puts the minority at the mercy of the mob, and works at cross-purposes to the effective use of human energy and individual initiative.

Henry Grady Weaver’s The Mainspring of Human Progress drew out how poverty was almost everyone’s fate throughout world history until the evolution of capitalism made civilization possible. That is a lesson well worth remembering, because as Weaver put it:

  • One of the best ways to ensure future progress is to keep clearly in mind the things which have been responsible for our past progress, as well as the things which may have kept America from being as great as it might have been.
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Is the Fed Propping Up the US Government?

04/07/2021Robert Aro

There are several variations of the quote:

Never believe anything until it has been officially denied.

The newest member of the Federal Reserve’s Board of Governors, Christopher J. Waller gave a speech last week about the importance of Central Bank independence, where he effectively denied the Fed’s culpability in propping up the US Government. He starts with explaining that:

Because of the large fiscal deficits and rising federal debt, a narrative has emerged that the Federal Reserve will succumb to pressures (1) to keep interest rates low to help service the debt and (2) to maintain asset purchases to help finance the federal government.

Such honesty should be commended. This emerging narrative comes as little surprise to those who’ve been following the actions of the Fed. Mr. Waller aims to dispel it as he declares:

My goal today is to definitively put that narrative to rest. It is simply wrong. Monetary policy has not and will not be conducted for these purposes.

He says the Fed acts “solely to fulfill our congressionally mandated goals of maximum employment and price stability,” and to determine appropriate monetary policy towards these mandated goals. In case it still wasn’t clear just how determined he is to dispel the idea that the Fed is nothing more than the nation’s life-support, or moves with motives beyond its dual mandate, he reiterates:

Deficit financing and debt servicing issues play no role in our policy decisions and never will… My objective today is to reinforce that message.

One way to determine validity is to compare the Fed’s actions versus its words. In the same speech, he provides various policy actions from the Fed made in concert with Congress:

The Congress has provided spending of roughly $5.8 trillion during the past year to deal with the pandemic and its effects on the economy.

Of course, a significant portion of this $5.8 trillion did not come from taxpayer dollars, but debt financing. If the Fed didn’t buy a large portion of this debt, the interest rate would be much higher. All the while, the Fed continues buying approximately $120 billion of US debt per month.

As explained, US debt to nominal gross domestic product is over 100 percent, the first time since World War II. Accordingly, per Fed policies:

The Federal Reserve's holdings of U.S. government debt has risen to around $7 trillion, with about $2.5 trillion of that total resulting from its asset purchase program aimed at smoothing credit market functioning and providing monetary accommodation.

If there is a narrative that the Fed is financing the US Government to keep rates low to service debt, or maintain asset purchases, it is hardly baseless, and one that has been reinforced through countless policy decisions and speeches.

It’s difficult to defend the apparent virtues of a Fed independent from Congress. Given last year’s various emergency lending facilities, the skyrocketing government debt (largely taken up by the Fed) and increases to the Fed’s balance sheet with spending programs run by treasury, the line between the Fed and US Government has never been more blurred. Should concern exist that a lack of independence would lead to a central bank which uses the money printer to pursue an anti-capitalist agenda, such as giving stimulus checks to people funded by government debt below market interest rates, it’s safe to say this line was crossed long ago; a line crossed when “independence” still remained intact.

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The Marxist Origins of James Burnham's Foreign Policy

04/05/2021David Gordon

A recent post by Francis P. Sempa on the University Bookman site offers valuable information on the genesis of James Burnham’s Cold War global crusading. Burnham, who worked after World War II as a CIA agent, was the dominant intellectual influence behind William Buckley’s efforts at National Review to purge Old Right advocates of a noninterventionist foreign policy from American conservatism. Sempa points out that during his Marxist period, Burnham saw the world as a struggle among rival imperialist powers.

“In a February 1938 piece in Socialist Appeal, [a Trotskyist publication] Burnham analyzed the geopolitical evolution of U.S. foreign policy…. And in Franklin Roosevelt the U.S. as it approached a world war had ‘the most daring and brilliant politician whom this country has yet produced.’ Burnham called FDR a ‘close and critical student of international politics.’ Roosevelt, Burnham continued, was a bold and imperious leader who was ‘extraordinarily sensitive to the moods of the masses, and unscrupulous to the last degree in exploiting those moods.’

Roosevelt recognized that ‘modern capitalism can work only with the extension of the function of the state into wider and wider spheres.’ The New Deal was an ‘ideology’ used “to convince the masses that the government … is their government.’ Moreover, FDR had implemented policies ‘deliberately and consciously set toward war, and toward the creation of the most favorable circumstances for the conduct of war.’ In fact, Burnham opined, ‘war is Roosevelt’s solution for the economic crisis.’ In other words, war was part of the New Deal. It would save capitalism and serve Roosevelt’s political interests. In later columns, Burnham called it the ‘War Deal,’ and called Roosevelt ‘the chief War-Monger.’

The coming world war, Burnham wrote in Socialist Appeal, will be ‘a new world struggle for the re-partition of the world among the major imperialist rivals.’ ‘All the fine moral ideals,’ he wrote, ‘from democracy to religion to national independence, are, for the imperialists, only so much grist to the mills that turn out the cynical demagogy whereby they hope once more to delude the people.’”

It would appear, though the conclusion is mine and not Sempa’s, that after World War II, Burnham decided to join the imperialists rather than continue to oppose them.

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