What Governors Can Do

What Governors Can Do

04/08/2020Jeff Deist

Which state has the courage to become the Sweden of the US, and take a different (read: better, freer) approach to coronavirus?

As of yesterday, five US states remain at least reasonably "open" in terms of their implemented measures to fight the pandemic. Arkansas, Nebraska, and South Dakota have no state orders in place closing businesses and forcing residents to stay home, while Iowa and North Dakota shut down "nonessential" businesses but have not issued stay-at-home orders.

Three states, Oklahoma, Wyoming, and Utah, have partial lockdowns in place.

The other forty-two states have varying orders in place, and some regions such as the San Francisco Bay area have issued their own stricter shutdown policies. Population-wise, nearly 95 percent of all Americans today live under some kind of restrictions on movement and business, decreed either statewide or by counties and cities.

There is a tremendous opportunity here for state and local politicians to distinguish themselves. South Dakota governor Kristi Noem in particular has been steadfast in resisting political pressure to order a statewide lockdown, and surely most Americans readily understand how sparsely populated Western states might approach a pandemic very differently than big urban cities.

What should that approach look like? Here are some broad brushstrokes: 

  • First, one brave governor (or county supervisor, mayor, etc.) gets the ball rolling by forming an impromptu coalition of states interested in staying open or reopening. Political pressure to go along with other states is strong, and the federal government has a long and sordid history of bullying states into compliance with national edicts using the carrot and the stick. The Trump administration thus far has been surprisingly reluctant to issue a nationwide shutdown, and governors looking for daylight should seize on this. They will need each other to stand against the tide—see, e.g., this broadside, against Noem.
  • Hold a press conference to announce the coalition, pick a marketable name for the effort (something like "South Dakota—Open for Business!"), and hold weekly calls open to media. Discuss conditions, options, and ideas, but make it clear that each state is wholly independent and that decisions are necessarily localized—this is not an interstate compact.
  • Announce guidelines, not orders, to citizens along these lines: people over seventy are strongly encouraged to self-quarantine in a strict manner. Those over fifty who have existing medical vulnerabilities to the virus are encouraged to do the same. Healthy people under fifty are welcome to return to daily activities but are strongly encouraged to wear masks (proven to be effective in several Asian countries). Of course many residents will self-quarantine regardless, and some businesses will choose to shut down regardless, per their individual choices. 
  • Reopen government courts, and set a deadline of sixty or ninety days hence for resumption of contract enforcement (including evictions). Ask the state bar association to set up statewide centers for landlords and tenants to meet and renegotiate—using realistic numbers—rental agreements. Hard-line landlords can go to court, and hard-line tenants can refuse payment, but evictions benefit neither party in the immediate term.
  • In stages, reopen public schools and universities based on local conditions. Hold parental votes online to determine whether each school district will continue online classes or revert to physical attendance.
  • Announce that restaurants, bars, and retail outlets are open as usual, with the strong caveat that provable cases of virus transmittal will be heard in state courts under a broad doctrine of premises liability. This will encourage the kind of measures by owners that have been seen in Taiwan and Singapore, ranging from using digital thermometers at store entrances to relentless scrubbing of surfaces in restaurants.
  • Immediately bid out a statewide insurance claims facility for coronavirus deaths so that in worst case scenarios families will be compensated for loss of loved ones. Insist that payments are retroactive to cover deaths prior to the bid, and use the model of airlines after crashes (quick payouts, little paperwork, claims personnel with good bedside manner). Payouts of $1 million would not be impossible to insure against in low-population states, where deaths likely will remain well under five thousand. Insurers themselves can go to the reinsurance markets, and insurance companies would have every incentive to test, treat, and take measures necessary to keep citizens alive. They would become de facto partners when it comes to securing medical equipment, hospital beds, and personnel. Insurance companies also would have a strong incentive, unlike politicians, to determine what constitutes death "from" the virus as opposed to death with the virus simply present in the body. Use bond revenue (discussed below) to cover premiums.
  • Immediately bid out to pharmaceutical companies for a supply of hydroxychloroquine, azithromycin, and other promising drugs. Eliminate unnecessary state restrictions on prescribing and dispensing such drugs, and consider making them available over the counter until infections subside. Distribute them widely across the state, and charge break-even (cheap) prices for generic versions.
  • Issue state bonds for sale to private equity investors, hedge funds, foundations, and individuals. Take a deep breath, and secure them with real estate owned by the state—make government, rather than taxpayers, sacrifice for once! Price them aggressively, with higher than market rates of interest (but not junk bond rates). Make these bonds nontaxable by the issuing state itself, both with respect to income and capital gains. Use the funds to provide insurance, medical equipment, hospital capacity, testing centers, and protective gear as needed.  
  • Encourage regional airlines, or major airlines serving the state, to relocate aircraft there and resume "domestic" flights (and/or flights between "open" states). 

None of these ideas is particularly difficult to implement per se, but do any governors have the political will to do so? They should if they take an honest look at the landscape of a country that is coming unglued. Every day there is less and less to lose by trying something different. In a crisis, bold usually wins. So the choice at present appears to be bold freedom or bold tyranny.

Americans are reconsidering federalism and even nullification in an era of intensely polarized anti-Trump sentiment. The Left argues for soft secession in the form of "Bluexit" from the hated red states; conservatives such as Angelo Codevilla call for strategic defiance of the feds in what he terms a "Cold Civil War." Golden State governor Gavin Newsome even recently referred to California as a "nation-state," and why not? With 40 million people, a huge economy, tourism, Hollywood and Silicon Valley, ports and coastlines, and major universities, not to mention beaches, deserts, and mountains, the state easily could be an independent nation.

We were already in uncharted territory, but the coronavirus truly laid bare the deep and intolerable political divisions wracking our country. Governor Noem and others could begin the healing process now, literally and figuratively, by showing us a way forward without DC. The virus could be the catalyst for a new map of America.

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Powell or Brainard?

11/21/2021Robert Aro

Any day now President Biden will nominate his choice candidate for the role of Chair of the Federal Reserve. If Jerome Powell doesn’t get reappointed then Biden will likely go with progressive Democrat Lael Brainard. Everyone has a take, some more opinionated than others.

The editorial board of the Wall Street Journal made no attempt to soften their thoughts on Powell in the onion piece entitled Tweedledum and Tweedledee at the Fed, calling Powell’s tenure “historic failure:”

Mr. Powell’s credibility has been damaged with his persistent refrain, until recently, that inflation is “transitory.” His new monetary policy framework of average-inflation targeting, unveiled in August 2020, has been a bust.

They conclude that given the choice between two, there isn’t much of a difference and that he’ll have to “own inflation even more than he already does.”

CNBC provided an array of opinions last week, including a chief strategist from State Street who also didn’t have much faith in a Powell re-nomination:

The odds and probabilities seem to be falling. The higher-than-expected inflation readings hurt, the trading scandals hurt, and the fact he’s a Trump appointee makes him an easy scapegoat for the administration.

A chief economist at Grant Thornton made an attempt to compare the two, CNBC quoting:

The biggest difference between her and Powell is she might be faster on climate change, though Powell was pretty quick on the uptake. The other issue is she’s much more open to cryptocurrency for the Fed, and that’s the biggest difference I know between them.

Still somewhat of a difference, if Brainard is “more open” to cryptocurrency, that certainly wouldn’t be a bad thing for the country. While being “faster on climate change” sounds more contentious as the effectiveness of inflating the money supply or suppressing interest rates could have little effect on making the world a greener place.

Perhaps it was an investment manager at Morgan Stanley who said it best:

It’s not like either one would be dramatically different from the other… It’s not like you’re going from a hawk to a dove. You’re changing leadership, not changing philosophy.

Isn’t that the truth?

For all that can be said, the difference between Brainard and Powell is more superficial than skin-deep. Certainly, every Fed Chair brings their own experience, outlook and maybe even leadership qualities. But their ethos, whether it’s the dual mandate or the desire to use the central bank’s powers to intervene in the free market, still stands.

Any notion of freedom, liberty or understanding the dangers of increasing the money supply will likely continue to go unnoticed. Whether Powell or Brainard, however the next four years goes, unless a dramatic change sweeps the country or the Federal Reserve, which demands an end to this pseudo-mainstream/make-it-up-as-you-go economics, there really isn’t much to look forward to regarding who will helm America’s central bank.

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The Dangers of State-Owned Lithium in Mexico

By 1982, Mexico had nationalized 85 percent of its economy. The eighties did not treat Mexico kindly and supposed attempts at neoliberalization took over Mexico in the late eighties and nineties. But as the stupidity of government ventures fades from our collective memory, old methods get reintroduced. Despite a history of failure, the Mexican government, led by President Andrés Manuel López Obrador, seems fixated on repeating such failures.

Case in point, as a part of his attempt to “organize” the energy sector, Mexico will create a new state-owned company to be in charge of the nation’s lithium. As El Financiero noted, “The head of the Ministry of Energy, Rocío Nahle, confirmed that the exploration and exploitation of the mineral will require the creation of a State company.” When asked about this move, Nahle harkened back to Mexico’s expropriation of the oil companies in 1938, a move Nahle praised, saying, “[F]or eight decades, [the oil expropriation] gave us wealth, schools, hospitals, roads…. Lithium will be the same, without a doubt, and I think it will be faster, such a strategic mineral that today is a raw material for the manufacture of batteries.”

This appeal to PEMEX, the state-owned oil company that was the result of the 1938 expropriation, is, quite frankly, hilarious. Indeed, on the same day that El Financiero ran the article, they also ran an article stating that the Mexican government is going to cover PEMEX’s debts (which total roughly $36 billion) that expire in 2024. A state-owned company run so well that the cronyist veil must be dropped so that the state can save its corporatist child is the proposed model for this new lithium company! How grand.

As previously explained, Ludwig von Mises and Murray N. Rothbard made it abundantly clear that there is nothing the Mexican government can do that will benefit the Mexican people. It is apodictically impossible for state action to be in pursuance of the common good. This power grab by the elites in Mexico City will only benefit them and those connected to them. It seems too obvious to even write, but monopolizing lithium production cannot make Mexicans richer. It did not work with oil, it did not work with banks, and it will not work with lithium. Even if this new company were able to bring the price of batteries and other lithium products below the current market price, it would be infantile to claim victory. If the Mexican government decided to spend the entire nation’s GDP on creating the most powerful computer known to man, I do not doubt a powerful computer would be created. But what would the cost be? Starvation for the entire country. The same applies here. Even if the state successfully reduces the price of lithium, this will not create wealth; it will only cause a redistribution of resources. This redistribution would lead resources away from the desires and needs of the people, impoverishing the society. What good are cheaper batteries if food prices go up? It cannot be reiterated enough—the state cannot create. The state only steals and redistributes. It only disrupts. It cannot benefit society in any way, even if it takes control of lithium. Only saving and investment, fueled by a respect for markets, will make Mexicans richer. State interference will only get in the way.

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Swiss National Bank Fights Climate Change

11/18/2021Robert Aro

The latest quarterly filing statement of the Swiss National Bank (SNB) has been issued. Switzerland’s publicly traded central bank had a decrease in the value of its US stock holdings by around $5 billion in Q3 of 2021, ending the quarter with a value of $157 billion. SNB currently has a profit of over $40 billion for the 9 months ended in the year. Perhaps subjective, it looks like a banner year for an entity who turns a profit through currency manipulation.

As for other affairs the central bank has been concerned with since last quarter; how about climate change?

Several weeks ago the question was asked to board member Andrea Maechler, whether the bank should use its money to “influence companies” linked to climate change initiatives. According to Reuters, the board member responded that it wasn’t the SNB’s job:

We don't have the goal to make the world greener. That's not our mandate.

A bold statement, and something one would be hard pressed to hear coming from a central banker on this side of the Atlantic.

But then the following week happened. On November 3 Reuters reports:

The Swiss National Bank reiterated its commitment to tackling climate change on Wednesday, saying it would take environmental factors into consideration in its macroeconomic modeling and monetary policy analysis.

The SNB bought “green bonds and excluded companies that systemically cause severe environmental damage.” Mining companies are also excluded from their purchases, which is ironic since green technology like electric vehicles rely heavily on the mining industry.

Despite Ms. Maechler comment, the SNB is using some of its power to invest in the green economy. To what ends remains anyone’s guess.

She was again in the news last week, reiterating their ongoing currency intervention strategy, also to ends which no one knows:

The reality is, we continue to have a safe-haven currency… It is something that we do continue to monitor, and we will continue to do so.

Ensuring the currency doesn’t become too strong is the stated reason behind SNB’s money creation scheme, one of the outcomes being the buying and selling of US stocks.

There are almost 200 national currencies in the world. If history is any indication of the past, and if one can reasonably predict the future, it's likely there will only be a handful of safe-haven currencies in the world at any given time. Even if all national currencies continue to decline into inflationary oblivion, there will always be the best of the worst currencies. The US dollar, the Japanese yen and Swiss franc are a few of a handful of such winners.

For all the concern over the risk of the franc becoming too strong, they should be concerned with the franc becoming too weak. Undoubtedly, the SNB will never want to lose the franc’s status as a safe-haven currency. So they're looking to find a level where the franc is weaker than some, or all other safe-haven currencies, but strong enough to maintain safe-currency status.

Like central bank investments into the green economy, no measurement, calculation nor logic will suffice to explain just how weak the franc should be. But with just a little more money creation, maybe one day, their objective can be met.

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The Most Radical Comptroller of the Currency in History?

11/17/2021Alex J. Pollock

The Biden administration has certainly made the most misguided nomination for Comptroller of the Currency in history with its nominee, Saule Omarova. Professor Omarova has published proposals displaying deep ideological commitments which make her obviously unacceptable for this key responsibility in the banking system. Even after this has become apparent, the Biden administration has very surprisingly not withdrawn her name and a Senate Banking Committee hearing on the nomination has been scheduled for this week, November 18.

Concerning this hearing, every Democratic senator on the Banking Committee should be asked in public:

  • Do you subscribe to the proposals published by Professor Omarova?
  • Do you support taking all deposits away from private banks?
  • Do you support making the Federal Reserve in charge of "economy-wide credit allocation"? Do you support making the Federal Reserve a deposit monopoly?
  • Do you support having the New York Federal Reserve Bank short investments it [somehow] decides are too expensive and buy to boost the price of investments it [somehow] decides are too cheap?
  • Do you support giving the government seats on privately owned companies' boards of directors, with the government having "disproportionate voting power"?

All these remarkably unwise and naive proposals are explicitly made in her published articles.

Honorable Senators: If you support these proposals, you should stand up and say so out loud, so everybody can hear you. If you don't support them, you should obviously vote No on this nomination.

Originally published at RealClearMarkets.

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Hugh Akston = Human Action?

I just received an intriguing email. The author suggests that Ayn Rand's novel Atlas Shrugged features Ludwig von Mises in one of the secondary roles (yet still as a hero). I had not at all seen the point that my correspondent raises, but I think he is right. When I wrote the Mises biography, I did not take the time to look up Atlas Shrugged again (I had read it in the mid-1990s), otherwise I might have noticed. Anyway, here is the message:

Dear Prof.,

I'm going through your profound "The Last Knight of Liberalism". It made me pause a couple of times, just to be able to read entire books before I continue (e.g. "Critique of Interventionism", "Bureaucracy"), and there were several fine points of Mises' thinking that I had overlooked or misunderstood - your brief summaries of deep ideas are invaluable for making such errors apparent.

So, first of all, thank you for the amazing work. Plus your lectures, of which I've watched a few. (I think that there was a list of lectures, following the book, which I watched before reading the book, but now I can't find, do they still exist somewhere?).

Though this message is not to express my gratitude, but rather, to ask you whether you made the same connection or not. I recently read Atlas Shrugged, and years ago I finished Human Action (which itself took years...). In your book, at some point you say: 

Mises was not a man to attach too much importance to material things. He once told Margit that, if she was after riches, she had married the wrong man. But neither was he the type of intellectual that Ayn Rand depicted in her novel Atlas Shrugged: the libertarian philosopher who in dire straits would descend stoically from his chair at the university to work behind the counter of a small-town burger joint. Had Mises ended up flipping hamburgers, his heart would have broken.

I'm dying from curiosity to know whether you spent a minute pondering about the name of that professor in "Atlas Shrugged", which was: Hugh Akston. What are the chances that this was a coincidence? Hugh Akston? Really?

Isn't this an "obvious" easter egg, hidden in plain sight, paying tribute to nothing other than Mises' Human Action? (I checked online, nobody seems to have noticed this).

Though I seem to recall that Ayn was not particularly impressed or appreciative by the first part of the book, i.e. praxeology, where the title comes from, but maybe she had a different opinion when she wrote the book, who knows.

Best, D.A.

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Social Obligations and Entrepreneurship

11/15/2021Lipton Matthews

In an era where entrepreneurs feel compelled to be agents of social change displaying deep commitments to social causes can yield immense admiration. Therefore, Corporate Social Responsibility (CSR) has become a seminal topic in the arsenal of entrepreneurship research. Often researchers divulge the pros and cons of CSR, though few consider the impacts of social obligations on entrepreneurship at the community level.

Large businesses are resourced to fund social activities, however prioritizing social obligations pertaining to family and community can hamper business growth. Unlike the narrative of CSR, social obligations are embedded in micro-structures operating at the family or communal level. The former is a call for companies to curate transcendental goals that comply with socially progressive causes. Yet there is an appreciation that companies can only fund social causes when they are prosperous.

Although some dispute the efficacy of CSR at least advocates accept that businesses are better situated to accommodate social demands when they are financially successful. However, the norm of social obligation in a communal setting is a different affair. In the context of social obligation, responsibilities are foisted on entrepreneurs because of the perception of prosperity. Social obligations are more relevant in collectivist societies where people are pressured to satisfy the interests of the group to the detriment of individual achievement.

Shedding light on the norm of social obligation can plausibly explain variations in high-growth entrepreneurship across regions. The potential for growth is stifled when a small business owner is expected to cover the expenses of family members and friends, due to the speculation that “he is rich.” Unfortunately, for the entrepreneur dismissing the solicitations of associates could result in him being depicted as selfish, so to avert this image, he may indulgence costly demands.

Using Africa as a case study researchers illuminate the adverse effects of committing to social obligations: “The kinship system in Africa exerts pressure on individuals to provide for the needs and obligations of other kin members. In East Africa, demands from one’s social relations, particularly kin, may include financial contributions to community projects, paying school fees or medical expenses, and providing for financial expenses of social events like weddings and dowry payment.” People usually comply with these burdensome requests to prevent social exclusion: “Because of fear of consequences of non-conformity to the kinship normative value “ “sharing without reckoning,” for instance losing legitimacy, status, and a following, entrepreneurs are forced to comply with demands from their social relations.”

Such developments exist because of the mistaken belief prevalent in some quarters that entrepreneurship ought to serve a social agenda. Similar beliefs are less pervasive in individualistic cultures, where people value autonomy, achievement, and self-actualization than group solidarity. Since individualistic societies, emphasize personal achievements entrepreneurs in these societies are more likely to perceive entrepreneurship as a tool to attain success by creating value.

In contrast, the constraints of social obligations levied on small entrepreneurs in a collectivist setting diverts attention from business expansion when scarce resources are directed to social obligations. By nature, the process of entrepreneurship aims to procure value for society. Hence jobs and the capacity to assist family members are merely the consequences of producing value. When one becomes an enabler of social requests, he is no longer managing a business, but existing to serve a social agenda.

Accordingly, Khayesi and George (2011) argue that high levels of communal orientation increase the acquisition of resources due to compliance with unreasonable social obligations and demands from kinship ties. Another recurring problem in these settings is that entrepreneurs might feel obliged to employ family members as a noble gesture. Yet, as research shows this can be a great error considering that the distribution of skills possessed by relatives could be narrow thereby limiting the scope of talent available for business expansion.

Moreover, neither is it cheap to maintain a network of dependents. In fact, researchers describe social payments to dependents as a solidarity tax, since failure to comply with demands will result in the isolation of entrepreneurs. Furthermore, beneficiaries of the entrepreneur’s benevolence often develop an entitled mindset motivating them to believe that the entrepreneur is permanently obligated to service their desires. This automatically slows growth by reducing resources available for capital expansion. However, in the long-term, beneficiaries are also victims.

By succumbing to their requests, the entrepreneur has ensured that they remain mendicants and this could deter them from acquiring the skills required to compete in an economy. On a broader scale, the negativities associated with excessive communal involvement often lead to declining profitability, negative firm growth, and ultimately financial demise. In hindsight, it is evident that unnecessary social obligations also impede the actualization of other businesses that could have been created with greater capital. Similarly, expending resources on social projects would have also depleted investments available for retooling.

However, the most pernicious effect of this arrangement is the perpetuation of the narrative that entrepreneurs exist to serve a social agenda. Without altering cognitive styles future generations will mature to embark on similar ventures, even to the extent of prioritizing social obligations before job performance.

To remedy the problem policymakers in developing countries where the situation is most dire ought to focus on reorienting cognitive perceptions of entrepreneurship. Entrepreneurship must be conceptualized as a medium to create value and not a tool to pursue social agendas.

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The Most Important Lesson Learned from this COVID Pandemic

We must reduce government power to a bare minimum, or the next threat to our security will lead to an even greater loss of individual freedoms.

In life, we are constantly making trade-offs between life, liberty, and property. When we take our car out for a ride, we trade life for liberty: walking is safer than driving. When we take our car to work, we trade life for liberty and property. The minute we get out of bed, we make these trade-offs, and we do it so often that most times we don’t even realize we are making them: Indeed, our entire lives are a series of continuous trade-offs. However, for this pandemic, politicians decided they knew the best trade-off for everyone, and like sheep we should blindly accept these government edicts. They even tried to "infantilize" their populations (e.g. most COVID propaganda used child-like cartoons) to quash any dissent.

 The general rationale for such government dictates is that individual decisions on life, liberty, and property do not consider the externalities on the life, liberty, and property of others. Not wearing a mask may spread the disease, affecting the lives and liberties of others. Individuals are said to be flawed and selfish.

Yet, the government is an association of individuals, so doesn't that also make the government flawed and selfish? Or do we have leaders who are flawless and altruistic individuals? How do we ensure these individuals are in power at the right moment? Also, is a unique strategy optimal for everybody and how do we determine this optimality with no comparison strategies? (See here and here.)

John Stuart Mill’s arguments in On Liberty (1859, Chapter III), said:

The spirit of improvement is not always a spirit of liberty, for it may aim at forcing improvements on an unwilling people… but the only unfailing and permanent source of improvement is liberty, since by it there are as many possible independent centers of improvement as there are individuals.

Mill argues individuals make different trade-offs and pursue different paths to individual strategies. This tatonnement process of trial and error based on imperfect information will ultimately lead to an overall strategy or strategies adopted voluntarily by others. This is a market-like process (mutually beneficial voluntary actions) and will be more popular and accepted than the one-size-fits-all strategy currently being enforced by virtually all governments.

France closed all its ski resorts during the winter of 2020-21, violating owners’ property rights. Switzerland was open for skiing, but with added restrictions on liberty and property. Which strategy was better? Before responding, why are we forced to choose between two strategies instead of many? Individual resort owners could have made those decisions and others about the use of their property. Where is the outrage over these restrictions on fundamental liberties? Do you own property if you cannot dispose of it as you wish? Of course, letting everyone find a strategy is judged as chaotic, and our benevolent government leaders cannot conceivably allow such a solution. Yet, just like a competitive market process is Pareto efficiency, this semblance of chaos would have led to a more accepted social outcome.

This pandemic has taught us a multitude of lessons about liberty and government.

First, democracy is no guarantee of freedom nor of protection from despotism. The advantage of democracy is that it is more likely to ensure peace since we have a peaceful transfer of power from one majority to another. However, democracy can be as despotic as any other form of government. People forget Hitler was elected democratically, and many Germans knew of the holocaust during the war.1 Democracy must have a rulebook to protect minorities from the majority. For the USA, that is supposedly the Constitution. But those rules need to be explicit and binding. Today, no one is batting an eye about taxing billionaires to pay for social programs. These billionaires are a minute minority (700 in this case), but nonetheless with fundamental freedoms of life, liberty, and property. Voting to limit the freedoms of others or minorities is a risky business, since tables can turn as many Jews discovered even before WW II.

Second, the police can rapidly be turned into an instrument of despotism. Today in France, the police will stop you if you cross a street in an open market because you are not wearing a mask. To enter many businesses, you must be vaccinated. Yet, one of the fundamental pillars of liberty, developed by John Locke and others, is a natural immutable right over one’s own body. 

Third, we can identify which politicians, from governor to dog catcher, respected and valued individual liberties, and those who saw individual liberties as an obstacle to their vision of right and wrong.

Many individuals, even those who do not classify themselves as libertarians, understand that fundamental freedoms were lost over these last two years. A way to turn the pendulum back is to have a serious debate and draft legislation to limit the scope of government actions. As Bastiat made clear (here) in his seminal work, the only or exclusive role of government is the defense of an individual's life, liberty, and property, and nothing else.

We must stop idolizing plunderers, and demand that the power of government be used to protect, and not plunder life, liberty, and property.

  • 1. Any government policy lasting over several years is likely favored by a silent majority of citizens.
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The Reality of Intervention in No Time to Die

11/12/2021Peter Anderson

The release of No Time to Die marks the end of Daniel Craig’s run as James Bond.  Since embarking on this role in 2006 for Casino Royale, critics have hailed his movie’s more realistic take on Ian Fleming’s famous spy.1 And with blonde hair and a head the size and shape of a medicine ball and matching visage, Craig was certainly a visual departure from his predecessors.  It is only fitting then that his finale comes in a film where the reality of our rulers’ failed planning and violent intervention that begets more violent intervention are on full display.

The plot of No Time to Die, such as it is in a movie where an explanation of key characters’ motivations or funding sources did not make the final cut, involves Bond trying to prevent the usage of Project Heracles which can target and kill specific people based on their DNA.  The rub is that he is attempting to destroy a weapon that M sanctioned the development of only to have it stolen from MI6 by SPECTRE who in turn have it purloined from them by the film’s uber-villain, Lyutsifer Safin.  When Bond confronts his boss about such an error in judgment, M resorts to pleas of patriotism and protecting the masses to rationalize greenlighting Project Heracles, arguments that fail to impress his best state-hired assassin.

It is in this scene that the film presents the audience with some semblance of reality.  We have the leader of a tax-funded organization lacking the foresight to see that creating something as powerful and dangerous as Project Heracles might not go as well as planned.  Bond’s incredulity is almost Hayekian in that it brings into focus the inability of state functionaries, no matter how well informed, to create plans that achieve the ends they desire.  Of course the dictates of plot require that Bond’s misgivings do not change him and he sets out to violently undo his employer’s mistake, actions in keeping with Mises’s statement that, ‘If the government will not set things right again by desisting from its interference…then it must follow up the first (intervention) with others’.2

While Hayek was writing about a different form of central planning and Mises’s above quote concerns price controls, their insights apply to more violent forms of state intervention.  Perhaps it is telling that both men served as officers in the Austro-Hungarian army during the First World War,3 an event that is almost a case study in how those that rule over us, those with the most information, can get it very wrong.  For instance, some in July 1914, including the Kaiser and Tsar, had a premonition of the disaster their actions would bring and yet they plunged into the abyss anyway.  These choices were all the more unconscionable for the statesmen of Russia, who, only nine years previous, had experienced a disastrous military defeat followed by revolution.  In 1917, the second coming of each was far worse. 

This example of Russia or the Americans’ hurried exit from Afghanistan calling to mind an ignominious flight from Saigon lend themselves to the cliché that history repeats itself.  Or, as Marx referred to Napoleon and his less illustrious nephew, ‘world-historic facts and personages appear…twice…the first time as tragedy, the second time as farce’.4  But history repeats itself only insofar as people make similar mistakes because they are prone to age-old vices like a lust for power, myopia, or the vanity that they can control things they most certainly cannot.  At the individual level, the problems these shortcomings create remain localized.  When present in state functionaries, those that would perfect the world with their intentions, they lead to theft, the upending of the social order, gulags and killing fields; all historical events brought about by an iniquity and ineptness that Hayek and Mises witnessed firsthand.

In the penultimate scene of No Time to Die, the state-sponsored murderers from MI6 drink expensive liquor in a lavish office, all of it funded by the taxpayers their acts have nearly destroyed.  Then they depart to carry on their interventions elsewhere in the world, seemingly having learned nothing and reminding the viewer of the CIA agents at the end of the Coen brothers’ superior film, Burn After Reading.  ‘I guess we learned not to do it again’, one of the agents says, although he admits to having no clue what they did the first time around.  Such comments are farcical enough on the silver screen.  In real life, they are only too tragic.

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Obituary: János Kornai, Prominent Hungarian Economist

11/12/2021András Tóth

János Kornai was born in 1928, in a century of bloody and tragic twists and turns. His homeland, Hungary, was especially a dangerous place during the 20th century. Among other things, it fell under both totalitarian regimes: Nazism and Communism.

Kornai’s personal life was also shaped by that century. His father became a victim of the Holocaust. He was assigned to a special labour-service corps of the Hungarian Army, into which Jews were drafted as a supplementary force destined to perish. Kornai, however, was fortunate enough to survive the war. For him the arrival of Soviet troops literally meant liberation. No wonder that the young Kornai, who had been destined to perish, became a Communist. His turn towards Communism was heavily influenced by the reading Das Kapital in 1947. He became a journalist of the central newspaper of the Hungarian Communist party. However, one of the show trials of the Stalinist era opened his eyes and changed his life-trajectory. Kornai, the formerly devoted communist journalist, increasingly distanced himself from the regime. He became a supporter of reforms and opted for an academic career as economist in 1955. He participated in the 1956 revolt, and after the bloody re-imposition of communism by Russian troops, he abandoned his Marxist beliefs.

Nonetheless, the reinstalled regime, led by János Kádár, had increasingly distanced itself from the openly repressive practices of the Stalinist period. In this new era, Kornai could return to follow his academic work.

At the beginning of his research career, he criticized the over-centralization of state planning and argued for a more decentralized market-mimicking socialist economy. In the reform-era of the Kádár-regime, from the late fifties to the early sixties and onwards, his academic work also contributed to the regime’s cautious, limited and selective marketization and liberalization reforms. The so-called goulash socialism brought prosperity compared to the high Stalinist period in Hungary. However, Kornai was keenly aware of the internal contradictions and deep-seated problems of the so-called happiest barracks of the Soviet camp. In the eighties, he became one of the most important modern critics of the then existing socialism. His ground-breaking work, The Economics of Shortage, argued that there are deep-seated internal reasons for the inevitable and unsolvable problems of the socialist system. His analyses of the systemic malfunctions of socialism are a staple for those who really want to know why Marx's socialist utopia is inoperable and anti human. His theoretical constructs, such as deficit and surplus economy, soft and hard budget constraint, which he developed for the analysis and comparison of the ideal systems of socialism and capitalism provided an important starting point and theoretical framework for further research.

During his long academic career Kornai had arrived at a vision close to the position of Austrian School of Economics. This was primarily based on his experience in a functioning socialist system. At the same time, he became one of the greatest pro-market thinkers of our time. Despite the shared vision, he never considered himself as belonging to the Austria School, although he admitted his intellectual debt to Mises, Hayek, Kirzner and especially to Schumpeter.

The reason for the shared vision is that key figures of the Austrian School, like Eugen von Böhm-Bawerk and Ludwig von Mises at the turn of the century and in the early twenties took on the challenge of criticising Marxism and the Marxist utopia of socialism. They showed that the "scientific" work of Marx had insurmountable contradictions and socialism bound to lead to failure. Also, the members of the Austrian School contrasted the benefits of a market economy with the inbuilt problems of the utopian Marxian vision of socialism. They argued most forcefully among the economic schools that capitalism is a dynamic economic system, and this dynamism is the key to human progress. Also, the Austrians were eminent among those who argued that the cause of the dynamism of capitalism is private property, entrepreneurship and competition.

One of the last important books of Kornai’s life is Dynamism, Rivalry and the Surplus Economy. The main theme of the book is the comparison of socialism (state planned economy) and capitalism (market economy). Comparison of the economic system of the shortages with the system of the surpluses.

Socialism produces shortage, capitalism produces surplus. The basic reason for this difference, according to Kornai, is that there is no opportunity and space for innovation in socialism unless it is considered important by the centralized planning state for some political purpose. Therefore, there is no room for entrepreneurs, whose function is to apply inventions in an innovative way. In contrast, the most important feature of capitalism is that it gives the entrepreneur freedom to realize inventions and satisfy consumer demand.

Kornai’s argument is by and large the same as the position of the Austrian School of Economics. One of the major differences is the method of inquiry between the Austrians and Kornai. Menger, the founding father of Austrian school, first established that the goal of economic theory is to discover cause and effect linkages in economic life.

 Kornai, using the contemporary language of positivist economic thinking, arrived at the same position that of Menger and Mises, who used a theoretical language, which is now considered outmoded by the mainstream literature. Kornai first discovers the economic facts, then analyses them and finally seeks to identify causal relationships. At the end, he arrives at basically the same positions as Menger: economic life is dynamic, the engine of dynamism is human invention and entrepreneurship, and there are cause and effect linkages, which shape human behaviour.

He would have deserved the Nobel Prize in Economics. What a pity that, with his death, he deprived the Nobel Prize Committee of the opportunity to recognize Kornai’s enormous significance not only in building economic theory, but also in undermining the scientific legitimacy of the Marxist vision of socialism and state planning.

It is even more painful that with his death he was deprived of the opportunity to educate us: interested lay readers, his fellow scholars, and last but not least, politicians. It is a pity, because the average citizens, scholars and politicians of our time are not acknowledging the benefits of capitalism but support economic policies furthering state interventionism. It is a bitter situation, as he learned through his own experiences, that state planning is a non-workable system. He forcefully argued that only a capitalist economic system can dramatically improve people’s lives and quality of life. He also believed that capitalism is also a necessary condition of democracy, and of avoiding totalitarian regimes, which were so abundant in the last century.

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Arbitration vs. Government Courts

11/12/2021Peyton Gouzien

Navigating the Judicial System can be a difficult endeavor for those unfamiliar with, untrained in, and inexperienced with legalistic language, court procedures, or even the resources for attorneys who are. This mixed with the often broad nature of the law makes the United States a highly litigious society with legal fees and spending on legal matters accounting for 2.2% of domestic GDP.

This follows as Civil court cases take upwards of two years just to get a court date and are long drawn out processes once you get to court. As a direct result of intense Judicial Bureaucracy, we find the U.S. with a judicial system that confuses and delivers inadequate and inequitable results to its users.

So does an alternative exist? Citizens of the United States are indeed bound by the rulings and laws of its legal system but in the procedure of how we resolve legal conflicts, there is a practiced alternative that seeks to avoid the long costly court battles of today.

Arbitration is that way, a legal process of out-of-court settlements of disputes between parties through a third-party arbitrator that is faster and more cost-effective than litigation. How is it faster and more cost-effective? Arbitration imposes set time limits and more streamlined approaches to evidence gathering and presentation that provide a cost-effective and timely decision to disputes between parties.

Some do argue its limitation is evidence gathering is a hindrance to the presentation of facts. The problem with this criticism is that the court’s “advantage” comparatively is the rules of evidence that will omit evidence that may be extremely relevant, but doesn’t fall into a red-tape standard of what they expect from evidence. The “flaws” in arbitration are avoidable, as arbitration relies heavily on the ability of arbitrators and to a lesser extent the parties involved’s knowledge of the issue they are in arbitration over.

Arbitration does have its limitations, specifically in what Arbitration can apply to and when. Since Arbitration is an attempt to seek a resolution to conflicts between two parties, criminal wrongdoings, such as theft or murder would not be under the scope of arbitration, as the desired outcome is not equitable outcomes in conflict resolution, but punishment and restitution for violent harm. Though even in some civil scenarios drawbacks can be observed.

To demonstrate, divorce proceedings are often an ugly process and this is usually because of a criminal component to the case. Around 25% of divorces are because of domestic violence in the relationship, a situation that finding a resolution that did not involve punishment and restitution is nearly impossible for good reason.

That still leaves 75% of divorces that are in fact not due to criminal reasons that could and should fall under arbitration. As previously established, litigation becomes a costly and time-consuming endeavor with its confusing and dense procedure that does not create outcomes that serve both parties’ interests, even when they are not mutually exclusive.

If someone gets a divorce simply for the fact they feel no love for the other partner, why should they endure a long costly battle, when Arbitration would deliver an outcome favorable to both parties? Most divorces will fall into this level of intensity that sees better dispute resolution than in trial proceedings.

The final limitation of Arbitration, however, is that its ability to be binding is tenuous at best. Arbitration works best when it is final and binding, as it incentivizes parties to reach equitable outcomes promptly for the both of them, rather that they can continue to appeal and sue or delay proceedings to “wait out” the other party or find some legal loophole where they can come out on top. The problem today lies in that if a party does not like an outcome of arbitration they can just take the issue to court if the Arbitration is non-binding, which many are. In binding arbitration, both parties agree not to sue one another as a condition of a successful arbitration, but binding arbitrations are only ever seen in an employee, employer context, as arbitration is agreed to before a dispute.

In most arbitrations, appeals can be made to the courts to change the outcome of the arbitration. The process is wrapped in the same judicial bureaucracy which holds down our civil courts and skews outcomes towards those with wealthy lawyers who can find loopholes in the thousands of pages of legal procedure and understand legalistic language.

The reasoning for the State’s insistence on hindering arbitration as an alternative to the courts is exactly because it demonstrates a lack of need for them. Why use a clunky, more expensive service that is a gamble between a favorable result and an untenable result, when the alternative is cheaper, easier to understand, and delivers better results on the whole?

The government is forced to compete with the private sector or alternative forms of conflict resolution and as competition does, it reveals the inefficient and less valuable service and it is then outcompeted by the services that are efficient and more valuable in the eyes of its consumers.

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