We Need Unilateral Free Trade with Post-Brexit Britain

We Need Unilateral Free Trade with Post-Brexit Britain

12/06/2018Ryan McMaken

Listen to Ryan McMaken's commentary on the Radio Rothbard podcast.

In order to whip up opposition to Brexit, pro-EU activists have long relied on generating fear by suggesting that without EU membership, British trade will suffer, and export totals will collapse.

This, however, has always been an unconvincing argument because EU membership tends to restrict participation in global trade more than it enhances it.

Even the EU admits that "growth in global demand is coming from outside Europe, noting that 90% of global economic growth in the next 10–15 years is expected to be generated outside Europe, a third of it in China alone."

Moreover, the importance of the EU as an export market for the EU has been declining in recent decades. 15 years ago, the EU accounted for over 50 percent of all UK exports. By 2015, the number had fallen to 44 percent, reflecting the shift toward markets outside of the EU.

Even the EU's core members like Germany know the real future of global trade lies outside the EU. As Alasdair MacLeod noted last year,

[W]ith respect to trade, Fortress Europe’s trade policies are increasingly disadvantageous to her. Germany now exports more to China than to any individual European country... [Germany] sees on her Eastern flank ...  a pan-Asian phoenix arising in the form of the Shanghai Cooperation Organisation (SCO), led by Russia and China. And it is growing.

...India and Pakistan also became full SCO members, taking the rapidly-industrialising membership to nearly half the world’s population. The Silk Road is sending goods to Europe, and will transport Mercedes, BMWs, and VWs the other way. Asian demand for German engineering and capital equipment is likely to become the largest market by far for the foreseeable future.

Really, by staying in the EU — which is obsessed with tightly regulating and controlling trade with countries outside the bloc — the UK is limiting its own ability to be flexible with the rest of the world.

These facts, however, are not readily apparent to the general public in the UK or elsewhere, and the idea that the UK will be somehow "isolated" without the EU continues to turn heads.

But how to help illustrate that Brexit really means more openness in trade?

There is an easy way to help with this, of course, and it would be the right thing to do with or without Brexit: The US should immediately adopt a position of unilateral free trade with the United Kingdom.

The US, of course, should adopt unilateral free trade with everyone right now, but failing that, the UK is certainly an acceptable place to start.

I suggest the UK as a starting point because open trade with Britain is an easy sell, politically.

After all, opening up unfettered free trade with the UK would be an easy choice strategically. It would make the US an indispensable partner all the more, and solidify the UK as an important part of the North American economy.

Moreover, any claims that unilateral free trade with the UK is "enriching our enemies" would be laughable. The UK and the US have been at peace for more than 200 years. Unilateral free trade doesn't lead to "exploitation" of the US in any case, but even if it did, this would not be an issue of military importance.

From an economic standpoint, of course, unilateral free trade is always to the benefit of the country which adopts it. It would mean lower production costs and less expensive consumer goods for countless Americans and American entrepreneurs. Even if the UK maintained tariffs on American goods, the end result would only mean more inexpensive goods for Americans, and more investment in the US by British companies who reap the rewards of selling more goods to Americans.

Claims that the US would be flooded with "cheap goods made by slave labor" — as some anti-China protectionists like to claim — would be obviously non-sensical. British labor laws are similar to those in North America, and the cost of British labor is similar as well.

Moreover, when it comes to trading with the British, it is harder for protectionists and xenophobes to capitalize on nationalist impulses to push their agendas. Are we really to believe that we ought to fear exploitation by English-speaking high-income foreigners who, by the way, have an extensive history of investment in American industries?

Trump's Mishandling of the Brexit Situation

Unfortunately, for all his big talk about building strategic advantages for the US government, Trump has badly mismanaged the Brexit situation and will probably botch the opportunity to draw the UK further into a greater partnership with the US.

Instead of using Brexit as a means to build a better relationship with the UK, at the expense of the EU's quasi-socialist bureaucrats, Trump has instead attempted to isolate the UK further in order to force UK acquiescence to Trump's economically-illiterate campaign against free trade.

This hurts American consumers and producers while also potentially helping politicians in both China and the EU. As Thomas Wright at Politico notes:

A post-Brexit Britain needs close relations with other major countries, and if the United States is difficult to deal with, [the UK] will find itself increasingly tempted into a closer economic partnership with China, one that will surely have political consequences. Trump’s antagonistic approach also plays into the hands the leftist leader of the opposition, Jeremy Corbyn, a persistent critic of a close U.S.-UK alliance who would likely leap at the chance to weaken the special relationship.

My personal position is that it is not important or in our best interests to engage in foreign policy posturing with China or any other country. Political neutrality and open commerce is always the best position. However, I do know that Trump and his allies think that playing games with China and the EU are important policy goals. But even by their standards, the administration's anti-UK protectionism is counter-productive.

No doubt Trump's supporters will stick to their little narrative in which Trump is playing 4-D chess and has some grand plan that will both stick it to the EU and massively increase American exports to the UK at the same time.

This is a pipe dream, of course, but some people seem to actually believe it.

Were the Trump administration wiser, it would pursue unilateral free trade not just with the UK, but with the entire Anglosphere of Canada, Australia, and New Zealand. Both the economic and strategic benefits would be substantial.

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The Federal Reserve Cannot Help America

07/21/2021Robert Aro

Over the weekend, Yahoo Finance Editor-in-Chief Andy Serwer wrote an article titled: How the Federal Reserve can really help America. His error is as old as the word “Socialism” itself. The author seems genuine in wanting a better society, but his misguided belief is that the way there is through better planning from the government and the Fed. Unfortunately, this is asking for something unachievable, as history has shown.

He opens with a nod to central banking, saying the:

Federal Reserve has greatly aided our economic well-being (by cushioning us from and even helping us avoid economic catastrophe)…

It’s understood the Fed tells us that without their interference in the free market, society would be a worse place; but multiple generations of Austrian authors have written to the contrary. Specifically, about the boom/bust cycle central banks cause through the interference of the money supply and interest rates, which most impacts vulnerable members of society. Yet the warnings go unheeded.

He says things like:

The Fed’s boosting of the economy by keeping interest rates low disproportionately helps rich people and thereby actually disadvantages those in need.

The revelation can be applauded. But Mises, Rothbard, Hayek, Hazlitt, to name a few of a long list of authors, have been saying this and much more for a very long time. Why aren’t their ideas further explored?

A difficult passage comes from an associate professor at University of Chicago, Michael Weber, who, according to the author, says:

It’s important to note here that low rates and goosing the economy does help people of color, lower educated women and other less wealthy groups… It’s just that it benefits the already advantaged more. 

In an era where statues are being torn down and maple syrup has become offensive, it’s shameful to think comments from an academic like Mr. Weber go unnoticed. That a handful of experts are paid to support a system which plans the economic landscape for “people of color” and “lower educated women” is highly disrespectful.

Despite mentioning “inequality” nearly 20 times, the author never defines specifics that can be resolved. The article continues with various opinions on how intervention can be used to address inequality, with no clear message other than the Fed should do something, which always boils down to money creation or interest rate manipulation.

The hope of using money creation to create a more just society is actually a very old tactic known as “inflationism.” Mises discussed this over 100 years ago, the various problems with tinkering with the money supply and how it ultimately hurts society. That the Fed’s metaphorical money printer be halted is not even considered by the author.

By the end, one question illustrates the problem the author missed completely, asking:

What if the Fed, Treasury Secretary (and former Fed chair) Janet Yellen and congressional leaders from both parties, convened a summit on how the federal government should address inequality? 

The appeal to a higher power is tempting. But it neglects over a century of Fed intervention, the boom/bust cycle, perpetual loss of the dollar’s purchasing power, asset bubbles, and abysmal track record governments have with creating solutions to our problems.

A desire to ameliorate economic disparity is commendable. But because it’s the government and the Fed who creates the disparity, the request is little more than appeal to popular hope and emotion. The author even cites some of the Fed’s missteps, but instead of asking to stop central planning, he asks for a better central plan.

He is asking that a mix of elected and unelected officials, by way of taxation or money creation, confiscate or create money to disburse to certain members of society, as well as manipulate interest rates to help those deemed most in need. The hope is that this new allocation of funds and changes to rates will make for a better society.

Congress mandated the Fed the tasks of full employment and price stability; but we must delve deeper to understand this. The goals can only be reached when the Fed says they are reached, as judged by measurements known only by the Fed. Although there is no such thing as an optimal money supply or an ideal interest rate, the Fed insists on controlling these on behalf of the nation; both being tasks that hundreds of millions of market participants can do better than any central bank.

If free market solutions to America’s economic problem are not considered, the alternative will always be a call for more socialism, except this time, it’s definitely going to be done right.

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Bitcoin Hodling and Gresham’s Law

07/16/2021Connor Mortell

In 2013, a bitcoiner posted “I AM HODLING” on a bitcoin forum, intending to write that he was holding during a large price drop. He was explaining that most people are not successful traders and as a result they will inevitably just lose out in the process of trying to time the bear market, so instead he encouraged that bitcoiners should hold and trust bitcoin. Since that day, this typo, “hodl,” has worked its way into the everyday vernacular of bitcoiners. It now represents the stance that not only should one not attempt to trade bitcoin through bull and bear runs, but also should not sell bitcoin under any circumstances because whatever asset it is one may purchase with it will one day be outperformed by bitcoin. For some purposes, this may be helpful, but for the adoption of a private money, this is exceedingly dangerous.

Gresham’s law is what makes this such a threat to bitcoin adoption. Gresham’s law is colloquially stated as “the tendency for bad money to drive out good money.” This happens because the consumer will find it preferable get rid of their “bad money” and as a result when they have to spend something, they will spend the “bad money” and it will end up being the money that is most widely accepted. It is used regularly to argue against private currencies with individuals like W.S. Jevons even citing it as the reason that “there is nothing less fit to be left to the action of competition than money.” Friedrich A. Hayek, however, dismantles this claim in his essay Denationalisation of Money: The Argument Refined:

What Jevons, as so many others, seems to have overlooked, or regarded as irrelevant, is that Gresham’s law will apply only to different kinds of money between which a fixed rate of exchange is enforced by law. If the law makes two kinds of money perfect substitutes for the payment of debts and forces creditors to accept a coin of a smaller content of gold in the place of one with a larger content, debtors will, of course, pay only in the former and find a more profitable use for the substance of the latter.

With variable exchange rates, however, the inferior quality money would be valued at a lower rate and, particularly if it threatened to fall further in value, people would try to get rid of it as quickly as possible. The selection process would go on towards whatever they regarded as the best sort of money among those issued by the various agencies, and it would rapidly drive out money found inconvenient or worthless. Indeed, whenever inflation got really rapid, all sorts of objects of a more stable value, from potatoes to cigarettes and bottles of brandy to eggs and foreign currencies like dollar bills, have come to be increasingly used as money, so that at the end of the great German inflation it was contended that Gresham’s law was false and the opposition and the opposite true. It is not false, but it applies only if a fixed rate of exchange between the different forms of money is enforced.

Sure, the consumer would have the desire to spend their “bad money” in order to get rid of it in exchange for preferable products, but the producer would have a desire to not accept this “bad money” and thus would require more of it in exchange for any given good. That’s why, as Hayek explained, Gresham’s law is not true with variable exchange rates, as bitcoin has with the dollar.

Under the natural system that Hayek lays out, if bitcoin really is the so called “good money” then because the exchange rate between these two currencies is variable, bitcoin should be able to drive out the “bad money.” However, if there is a widespread cultural discouragement of giving up bitcoin in exchange for other assets—put more simply, using bitcoin—there is an inverse effect to that of the variable exchange rate as it relates to Gresham’s law. Instead the average bitcoiner returns to the image originally painted in Gresham’s law where the owners of “good money” hold it away in a safe while the actually circulating money is the “bad money.” For all intents and purposes, the bad money ends up driving out the good again when bitcoiners over commit to hodling.

This all comes with one final disclaimer: there is nothing wrong with holding/saving. In fact, as Austrians we know that saving is vital to the economy. I am by no means saying that bitcoin has reached some objective value that makes it worth selling and using now. Obviously, bitcoin’s value is subjective and thus one should not spend it on things which they hold lower in ordinal value than that amount of bitcoin. I’m simply saying that as long as the bitcoin community pushes a narrative of hodling no matter what and spending that bitcoin under no circumstances, it will push more and more a scenario in which the “bad money drives out good.”

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The Fed’s “Special Topics”

07/15/2021Robert Aro

This week, Federal Reserve Chair Jerome Powell gave two days worth of testimony before Congress. As part of his testimony, he presented the Monetary Policy Report July 2021. With this week’s major economic news flow undoubtedly being that (price) inflation, as measured by the Labor Department, is on the dramatic rise, it’s easy to lose sight of the Fed’s “special topics” outlined in Powell’s report.

The report mentions:

The labor force participation rate (LFPR) has improved very little since early in the recovery and remains well below pre-pandemic levels.

But this seems strange. Just last month various news outlets, including CNBC, had headlines to the effect of:

Job openings set record of 9.3 million as labor market booms.

The Chair doesn’t mention job openings but provides various reasons why the LFPR is down, including the explanation that the:

level of unemployment insurance benefits may also have supported individuals who withdrew from the labor force.

Imagine an America where individuals must choose between working to receive a salary or not working and still receiving a salary….

Powell moves on to price increases, noting:

Consumer price inflation has increased notably this spring as a surge in demand has run up against production bottlenecks and hiring difficulties.

The concept of “bottlenecks” continues to take a large part of the blame for the increase in prices lately. However, what level of bottlenecks should be across all industries, whether they should exist at all, and what the Fed can do to manage said bottlenecks hasn’t been specified by Powell.

“Inflation expectations” are another area the Fed tries best to manage, as the notes to the report specifies:

Inflation expectations are often seen as a driver of actual inflation, which is why a fundamental aspect of the FOMC's monetary policy framework…

Inflation expectations have been on the rise. Yet various surveys, expert opinions, forecasters and market-based measures allow the Fed to understand inflation expectations, which in turn drive “actual inflation” doesn’t add up. If it were that easy, there shouldn’t be any inflation problems in the USA, or anywhere else in the world. If inflation expectation only influences a portion of the actual inflation numbers without knowing whether that influence is 1% or 99%, the Fed will have no concept as to how effective its efforts to influence opinions really are.

Lastly, there remains “the balance sheet.” Per Powell’s report:

The Federal Reserve's balance sheet has grown to $8.1 trillion from $7.4 trillion at the end of January, reflecting continued asset purchases to help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

Of all the Fed’s special topics, this remains the most stunning: that we live in a society where $8 trillion has been lent out by a central bank on the basis of fostering a smooth and accommodative market. What can hardly be explained in great detail has become the Fed’s guiding principle, responsible for the increase in the money supply and suppression of interest rates for a very long time. The response from mainstream economists, members of government and the public remains deafening. Either they don’t understand or don’t care enough to demand that the Fed’s hand be halted. And if they do understand the problem, at the present time they remain in a position to do little about it.

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As Inflation Rises, the Fed Is Losing the Narrative

07/13/2021Tho Bishop

Another week, another economic report far worse than expectations.

As Vladimir Zernov notes:

U.S. has just released Inflation Rate and Core Inflation Rate reports for June. Inflation Rate grew by 0.9% month-over-month in June compared to analyst consensus which called for growth of just 0.5%. On a year-over-year basis, Inflation Rate increased by 5.4% compared to analyst consensus of 4.9%.

Core Inflation also exceeded analyst expectations, increasing by 4.5% year-over-year compared to analyst estimate of 4%.

Just as important as the official numbers is the growing drumbeat of Fed skepticism outside of its usual critics. This week prior to the new Consumer Price Index (CPI) report, the Wall Street Journal published the results of a survey of economists forecasting inflation higher than the Fed’s projections.

Economists surveyed this month by The Wall Street Journal raised their forecasts of how high inflation would go and for how long, compared with their previous expectations in April.

The respondents on average now expect a widely followed measure of inflation, which excludes volatile food and energy components, to be up 3.2% in the fourth quarter of 2021 from a year before. They forecast the annual rise to recede to slightly less than 2.3% a year in 2022 and 2023.

That would mean an average annual increase of 2.58% from 2021 through 2023, putting inflation at levels last seen in 1993.

Last week, the International Monetary Fund’s (IMF) Kristalina Georgieva also warned that the Fed may be underplaying inflation risks.

The world is also keeping a close eye on the recent pickup in inflation, particularly in the U.S. We know that accelerated recovery in the US will benefit many countries through increased trade; and inflation expectations have been stable so far. Yet there is a risk of a more sustained rise in inflation or inflation expectations, which could potentially require an earlier-than-expected tightening of US monetary policy.

For an institution like the Fed, the growing recognition that its future projections are entirely unreliable is as important as troubling inflation reports. Central banks recognize that the ability to shape the narrative is a vital policy tool. A Fed whose forecasts lack credibility is a Fed in trouble and one that may be panicked to act in ways that contradict previous statements.

This explains why today’s inflation report raised market expectations that the Fed will end up increasing rates by the end of 2022, quicker than what most Fed members projected last month.

Source: Bloomberg via Tyler Durden, "Stocks, Bonds, and Bitcoin Slammed after Surgin CPI; Dollar, Rate-Hike Expectations Spike," July 13, 2021, ZeroHedge.

It should go without saying that the Fed’s issues go well beyond bad forecasting. The monetary hedonism of America’s central bank is one of the great policy disasters of the current century. Eroding mainstream confidence in the Fed’s forecasting is a factor that could help shape the timing of the next financial crisis.

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How "Cultural Distance" Acts as a Barrier to Trade

07/09/2021Lipton Matthews

Economists frequently tout trade as a mechanism to boost growth and living standards. Yet some continue to extol the virtues of protectionism. However, the internecine debate between free traders and protectionists is less interesting than interrogating why countries erect barriers to international trade. A basic explanation is that opposition to trade is a consequence of nationalism and this assumption is partially true.

During the early twentieth century, trade policies in several European countries were cultivated by national sentiments, and more recently Donald Trump advocated imposing tariffs on China, so undoubtedly nationalism can stimulate demand for protectionist policies. Likewise, protectionism also gains traction when leaders perceive trade as a zero-sum game by not recognizing that the savings derived from trade are incomparable to the deficit.

Like most transactions, we engage in international trade because it increases utility. For example, when we purchase consumer goods, clearly, we lose money, but in exchange, we are provided with commodities that enrich the quality of life. Hence, in this regard, international trade is no different, since it is essentially about maximizing utility. A fundamental misunderstanding in the perception of international trade is that it should privilege the national good, when, in reality, trade serves to elevate the preferences of individuals.

States have political agendas that are usually incompatible with the interests of individuals. As such, advocating the national good is a rhetorical trick employed by politicians to guilt citizens into embracing their policies. Ideally, the state and the individual are separate entities, and the former should refrain from encroaching on the rights of the latter. When the state limits the choices of consumers by instituting protectionist measures, this violates one’s right to choose and by extension property rights.

Although we have exposed the fallacies inherent in political and economic critiques, the puzzle remains unsolved. Such arguments articulate why countries renounce international trade under certain circumstances, but they do not demonstrate why trade is more likely to be parochial than global. In brief, direct opposition to trade is not the only barrier to international distance, cultural distance also explains obstacles to international trade.

Though libertarians would prefer a stateless society, the truth is that governments are primarily responsible for economic policy, and like people, they select trading partners based on commonalities. Although trading occurs to ensure that both parties obtain products that cannot be sourced locally, states must respect each, before trading is initiated. Of course, culturally similar states do compete, but due to commonalities, they are more likely to be appreciative of individual differences.

On an anecdotal level, it is evident that regional trade blocs are more popular than global ones. A perfect example is that despite the glorification of global trade, bureaucrats in Europe and Asia are passionately promoting regional trade, supranational trade blocs encompassing several regions are failing to gain steam. Unsurprisingly, research has captured the impact of cultural distance on trade. Tadessa and White in a 2007 paper tracking the effect of cultural distance on US state-level exports during the year 2000, submit that greater cultural distance reduces aggregate exports, alongside the exports of cultural and noncultural products.

Furthermore, after employing bilateral trade data that cover the period 1996–2001 for nine Organisation for Economic Co-operation and Development (OECD) countries and fifty-eight other countries for which cultural distances can be calculated, researchers conclude that cultural dissimilarity has a statistically positive and negative influence on the volume of trade flows. According to the results, a 1 percent increase in the cultural distance between OECD countries and their trading associates would reduce aggregate imports of the typical OECD country by 0.7758 percent.

In addition, according to a 2017 meta-analysis exploring the nexus between cultural distance and firm internationalization, companies are unlikely to establish operations in culturally distant locations. The researchers further report that cultural distance has a negative effect on subsidiary performance, but no effect on the performance of the whole multinational corporation (MNC). A possible reason for this is that MNCs can use the experiences of the subsidiary as a guide to improving performance in other markets, thus compensating for the negative performance of the subsidiary.

Undeniably, cultural distance inhibits trade, but luckily economic analysis suggests that immigration might play a role in countering the trade inhibiting effects of cultural distance. Immigrants through their diverse preferences can generate demand for foreign products thereby accentuating partnerships with non-traditional trading neighbors. Moreover, by possessing intimate details relating to their country of origin, immigrants can enhance the quality of information available to local businesses; therefore, lowering information costs for producers.

For example, in a groundbreaking paper, Burchardi et al. (2018) assert a relationship between the number of residents with ancestry from a foreign country and the propensity of firms to engage economically with that country. Further, they also contend that immigration achieves these results by reducing the cost of information transmission.

In sum, cultural distance is not a prominent topic in economic debates, but it deprives people of major opportunities, by acting as a barrier to trade. Therefore, policymakers must consider this hurdle when crafting trade policy. We cannot afford to lose the benefits of trade due to an inability to transcend cultural differences.

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Count Our Blessings, Not Miseries

07/09/2021Gary Galles

It is a natural human tendency to focus on our problems, but such a focus has a cost—exaggerating the size of the problems we face relative to the size of the blessings we benefit from. In a sense, that tendency may be more pronounced today among those who advocate for liberty, because they recognize the cornucopia of blessings liberty enables, yet they see those liberties eroding and sometimes collapsing.

Less liberty than we could have is indeed disheartening. However, that has always been the case. On the bright side, the many ways liberty has found to get around man-made limitations has still bequeathed us blessings beyond even the wildest dreams of earlier generations. And it also means that, looking forward, the potential gains from expanding liberty from where it is today are also larger (like supply-side economics, in that the benefits from tax cuts are greater, the higher the initial tax rate, because they cause a greater proportionate increase in take-home pay in that case).

Leonard Read urged us, as have many others over many years, to “Count Our Blessings, Not Miseries,” in Chapter 23 of his 1981 Thoughts Rule the World. His focus, and his reasoning for it, deserves consideration.

  • There are ever so many freedom devotees who are afflicted with downheartedness. Their pessimism is due to the political skullduggery--“rascality; trickery”--that features our present decline into socialism.
  • We need to see the evil but, at the same time, see the good: our blessings--thousands of times greater.
  • Good and bad have existed together since the beginning of time, but no one needs to wallow in the bad…that much more time to think about what’s right and to count my blessings.
  • Our blessings are so common that we forget to praise them, that is, to count them!
  • The original source of the American miracle was our Declaration--unseating government as the source of human rights and placing the Creator there. The companion documents--the Constitution and the Bill of Rights--limited government more than ever before in history! Result? Americans looked to themselves rather than to government for welfare. Self-responsibility on an unprecedented scale! The millions enjoying blessings by the millions!
  • What happened after decades of countless blessings? The Source forgotten! And why? The blessings have become so abundant that today’s citizens take them for granted.
  • There is, also, a very important reason for counting our blessings: it helps rid the soul of covetousness. To count one’s blessings is to accent what’s right… covetousness is as deadly as any of the other sins--indeed, it tends to induce the others.
  • Covetousness or envy generates a destructive radiation with ill effect on all it touches.
  • Consider the social implications, the effects of envy on others. At first blush, the rich man appears not to be harmed because another covets his wealth. Envy, however, is not a benign, dormant element of the psyche; it has the same intensive force as rage, and a great deal of wisdom is required to put it down. Where understanding and self-control are wholly lacking, the weakling will resort to thievery, embezzlement, piracy, even murder, to gratify his envy and “get his share.”
  • Though weakness of character afflicts all of us to some extent, only a few are so lacking in restraining forces as to personally employ naked force, such as thievery, to realize the objects of envy. Fear of apprehension and reprisal tends to hold such open-faced evil in check.
  • However, if the evil act can be screened, if the sense of personal guilt and responsibility can be sufficiently submerged, that is, if self-delusion can be effected, gratification of covetousness will be pursued by the “best people.”
  • The way is no secret: achieve anonymity in a mob, committee, organization, society, or hide behind legality or majority vote.
  • With the fear of exposure removed, millions of Americans feather their own nests at the expense of others, and on a scale never imagined by thieves, pirates, or embezzlers. Our “best people”…gratify their envy with no qualms whatsoever. But their salved conscience in no way lessens the evil of covetousness; quite the contrary, it emphasizes to us how powerfully this evil operates at the politico-economic level. This subtle evil is indeed the genesis of more obvious sins.
  • We should also note the extent to which this “guiltless” taking of property by coercion is rationalized. Accomplices, bearing such titles as philosophers and economists…explain how the popular depredations are good to everyone, even for those looted. Thus, we find that covetousness, unchecked in the individual, lies at the root of the decline and fall of nations and civilizations.
  • As contrasted with the emulation of virtues, which takes nothing from but adds to the welfare of others, envy is nothing more than an avaricious greed to possess what exclusively belongs to others…opposed to an elevation of the spirit… William Penn grasped this point: “Covetousness is the greatest of Monsters, as well as the root of all Evil.”
  • It is impossible for the eye to be cast covetously at the material possessions of others and cast aspiringly at one’s own creativity. Thus, envy leaves unattended the human being’s upgrading…envy leaves the soul, the spirit, the intellect, the psyche to rot, and there can be no greater evil than this…it surely behooves each of us to find a way to rid himself of this evil…Count your blessings!
  • Any person who is not aware of countless blessings, regardless of how low or high his estate, will be no more aware of his blessings should his envy be gratified. Awareness of blessings is a state of consciousness and is not necessarily related to abundance and affluence. He who is rich in worldly goods but unaware of his blessings is poor, and probably covetous; he who is poor in worldly goods but aware of his blessings is rich, and assuredly without envy.
  • Count your blessings…for wisdom is awareness.
  • As progress is made in an awareness of our blessings, we are struck by how greatly they outnumber our woes and troubles. In a state of unawareness, the woes loom enormous, and we tend to covetousness; in awareness the woes are but trifles, and the covetousness fades away.
  • This remarkable cure for covetousness also puts us on the road to social felicity; for we best serve ourselves and others through the exercise of self-responsibility and freedom!

Leonard Read’s recognition that we should count our blessings is part of a long line of wisdom, derived over centuries of human experience. That advice is certainly no less true of adherents to liberty, whose arguments also rely on the wisdom of the ages (even if largely learned from liberty’s absence). But Read also reminds us of the truth that for us as individuals as well as a society, “Counting your blessings will give you more blessings to count,” as Victoria Brown has pointed out. And we all want more blessings.

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Economic Calculation under the Fed

07/09/2021Robert Aro

When the Federal Reserve or government intervenes in our lives and the free market, it’s normally referred to as “central planning” or “economic planning.” However, whenever a handful of handsomely compensated people make economic decisions on behalf of the citizens, economic calculation is impossible. But without economic calculation, how are decisions made?

Last Thursday, Federal Reserve Bank of Philadelphia president Patrick Harker gave an interview to the Wall Street Journal, illustrating the thought process for “tapering” the Fed’s balance sheet:

We’re talking about a process that once we start it, depending on how we do it, would be, say, 12 months in length…. We’re doing $120 billion a month, if we cut back $10 billion each month, we’d be done in 12 months, right? I think that’s a reasonable thing to do.

He’s referring to the $8 trillion balance sheet which the Fed has been steadily increasing by purchasing approximately $120 billion worth of US and mortgage debt over the past year.

Interestingly, this tapering doesn’t refer to actually shrinking the balance sheet from its current all-time high. Instead, the goal is to decrease the number of new purchases by a smaller amount on a month-over-month basis.

Under his plan, one year later the Fed would add approximately $760 billion new securities. If the Fed continued its $120 billion monthly purchase for an entire year, the result would be approximately $1.4 trillion in new securities purchased in the year. It hasn’t been stated what happens after the one-year mark is reached.

While true, $760 billion is less than $1.4 trillion, the takeaway is the method these planners use to arrive at these billion-dollar ideas. The first issue is that the rationale behind $120 billion per month payments by the Fed has never been explained. Other than telling the public that this money will add liquidity to the market, no one has ever explained how the purchase amount was arrived at. They could have bought $60 billion a month, or $200 billion a month. Either way, there exists no measurement or calculation by which to say that $120 billion per month is the correct or even “optimal” number of securities to purchase.

Over a year later, the Fed recognizes they should not baselessly increase the money supply indefinitely; therefore, talk of tapering begins. But the second issue is just as impossible to fix as the first: If the Fed is to buy less securities, then by how much, and how quickly should this be done?

They could simply stop making purchases overnight, or use the Philadelphia Fed president’s proposed plan of a slow reduction in purchases, despite no one being able to explain why $10 billion a month is preferred to $20 or $30 trillion. All methods are equally valid, as they are based on nothing more than the whimsical nature of the central planner; thus, all decisions of the planner remain, in effect, “right.” Until central planners are removed, society will have no other choice but to live under the market conditions the planners believe best suited for us.

We are sadly reminded that a handful of experts have the power to make billion-dollar decisions based on nothing more than guesswork or a gut feeling at best, or for self-serving and possibly nefarious means at the very worst. In the case of the Fed’s tapering, according to the president, there need not be any basis other than the belief that it seems like a “a reasonable thing to do,” right?

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It’s Saigon in Afghanistan

07/06/2021Ron Paul

The end of the 20-year US war on Afghanistan was predictable: no one has conquered Afghanistan, and Washington was as foolish as Moscow in the 1970s for trying. Now, US troops are rushing out of the country as fast as they can, having just evacuated the symbol of the US occupation of Afghanistan, Bagram Air Base.

While perhaps not as dramatic as the “Fall of Saigon” in 1975, where US military helicopters scrambled to evacuate personnel from the roof of the US Embassy, the lesson remains the same and remains unlearned: attempting to occupy, control, and remake a foreign country into Washington’s image of the United States will never work. This is true no matter how much money is spent and how many lives are snuffed out.

In Afghanistan, no sooner are US troops vacating an area than Taliban fighters swoop in and take over. The Afghan army seems to be more or less melting away. This weekend the Taliban took control of a key district in the Kandahar Province, as Afghan soldiers disappeared after some fighting.

The US is estimated to have spent nearly 100 billion dollars training the Afghan army and police force. The real number is likely several times higher. For all that money and 20 years of training, the Afghan army cannot do its job. That’s either quite a statement about the quality of the training, the quality of the Afghan army, or some combination of the two.

Whatever the case, I am sure I am not the only American wondering whether we can get a refund. The product is clearly faulty.

Speaking of money wasted, in April, Brown University’s Cost of War Project calculated the total cost of the Afghanistan war at more than two trillion dollars. That means millions of Americans have been made poorer for a predictably failed project. It also means that thousands of the well-connected contractors and companies that lurk around the US Capitol Beltway pushing war have become much, much richer.

That’s US foreign policy in a nutshell: taking money from middle-class Americans and transferring it to the elites of the US military and foreign policy establishment. It’s welfare for the rich.

Reprinted with permission.

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More Details on Fedcoin

07/06/2021Robert Aro

The path to the Federal Reserve’s central bank digital currency (CBDC), or Fedcoin, continues to be played out before the public. This time, Fed vice chair for supervision Randal K. Quarles gave a speech Monday sharing his general ideas. His conclusions are interesting:

First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve CBDC are unclear. Third, developing a CBDC could, I believe, pose considerable risks.

However, the benefits of a new technology being unclear or the high risks never stopped the development of technology before. He goes on to say:

Even if other central banks issue successful CBDCs, we cannot assume that the Federal Reserve should issue a CBDC. The process that Chair Powell recently announced is a genuinely open process without a foregone conclusion.

While he seems sincere when noting the risk, it’s unlikely that a future would exist where other central banks would have a CBDC but the Fed would not. Whether central bankers make it appear as though a debate is ongoing, the public should be prepared that one day, given the inevitable progress of technology and general fear of missing out, one day there will be a Fedcoin.

The question remains: What will Fedcoin look like? So far, not good.

Vice Chair Quarles foreshadows things to come, providing a few ways the coin could be used:

One is an account-based model, in which the Federal Reserve would provide individual accounts directly to the general public. Like the accounts that the Federal Reserve currently provides to financial institutions, an account holder would send and receive funds by debit or credit to their Federal Reserve account.

Consider a future where you could deposit and withdraw funds at your local Federal Reserve branch. It would put the consumer one step closer to the newly created money, skipping their local bank entirely! Whether it would function through direct payments from the Fed to the public or the individual would be able to borrow funds from the Fed has yet to be seen.

He also mentions:

A different CBDC model could involve a CBDC that is not maintained in Federal Reserve accounts. This form of CBDC would be closer to a digital equivalent of cash. Like cash, it would represent a claim against the Federal Reserve, but it could potentially be transferred from person to person (like a banknote) or through intermediaries.

Under this method, it seems as though they would create a parallel US dollar to circulate digitally …

It’s all quite fantastic! The supervisor even admits:

I am skeptical that the Federal Reserve has legal authority to pursue either of these CBDC models without legislation. Nevertheless, the recent clamor over CBDCs makes it appropriate to explore the benefits, costs, and practicalities of implementing one in the United States if such legislative authority were granted. 

The problem, for all that can be debated, contemplated, and discussed in the public eye, is the uncertainty. Technology has a way of progressing and legislation changes to suit the government’s needs. While no one has formally detailed how exactly Fedcoin will function in society, we know it’s only a matter of time until it does; when that comes, further increases to the money supply, and more government control over the supply of money will come with it.

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An Italian Translation of "A Brief History of Secession Referenda in Europe"

My thanks to Carlo Lottieri for publishing an Italian translation of "A Brief History of Secession Referenda in Europe" in the publicationL'indro: "Breve storia dei referendum sulla secessione":

La Scozia non ha ancora rinunciato all’idea di tenere, nei prossimi anni, un altro referendum sull’indipendenza. Anche se Londra si oppone, è da rilevare che il dibattito sulla secessione scozzese non riguarda se un voto su tale questione sia morale oppure se sia legale. Piuttosto, la questione è se tale voto sia prudente o quanto meno in questo momento.

Tutto ciò è abbastanza diverso da quanto avviene nella politica americana, dove qualsiasi ipotesi di indipendenza per qualsiasi area degli Stati Uniti -un Paese che non è nemmeno vecchio come l’unione tra Inghilterra e Scozia, la quale dura da trecento anni- è ovviamente considerato illegale ed estraneo a una seria discussione politica.

Read the full article. 

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