Power & Market
Political scientist John Mueller is not convinced that nuclear weapons are the driving force behind the lack of major wars in recent decades. His article "The Essential Irrelevance of Nuclear Weapons" in International Security (Fall 1988) offers a informative contrary view to the often-bland assertion that nuclear weapons — and not the highly destructive nature of conventional wars — are what keep world powers away from new wars.
In the case of the deterrence offered by the United States, Mueller is especially unconvinced, especially since the potential military power of the US government if far greater than anything any other single state can muster.
It's not just fear of American nuclear weapons that's a deterrent, Mueller notes. It's American economic power that really matters. In discussion of post World War II deterrence against the Soviets, Mueller examines how American economic power inspired fear:
[E]ven if one accepts these assumptions [i.e., the assumption that American nuclear power restrained the Soviets in Western Europe], the Soviet Union would in all probability still have been deterred from attacking Western Europe by the enormous potential of the American war machine. Even if the USSR had the ability to blitz Western Europe, it could not have stopped the United States from repeating what it did after 1941: mobilizing with deliberate speed, putting its economy onto a wartime footing, and wearing the enemy down in a protracted conventional major war of attrition massively supplied from its unapproachable rear base.
The economic achievement of the United States during the war was astounding. While holding off one major enemy, it concentrated with its allies on defeating another, then turned back to the first. Meanwhile, it supplied everybody. With 8 million of its ablest men out of the labor market, it increased industrial production 15 percent per year and agricultural production 30 percent overall. Before the end of 1943 it was producing so much that some munitions plants were closed down, and even so it ended the war with a substantial surplus of wheat and over $90 billion in surplus war goods. (National governmental expenditures in the first peacetime year, 1946, were only about $60 billion.) As Denis Brogan observed at the time, "to the Americans war is a business, not an art."
If anyone was in a position to appreciate this, it was the Soviets. By various circuitous routes the United States supplied the Soviet Union with, among other things, 409,526 trucks; 12,161 combat vehicles (more than the Germans had in 1939); 32,200 motorcycles; 1,966 locomotives; 16,000,000 pairs of boots (in two sizes); and over one-half pound of food for every Soviet soldier for every day of the war (much of it Spam). It is the kind of feat that concentrates the mind, and it is extremely difficult to imagine the Soviets willingly taking on this somewhat lethargic, but ultimately hugely effective juggernaut. That Stalin was fully aware of the American achievement-and deeply impressed by it-is clear. Adam Ulam has observed that Stalin had "great respect for the United States' vast economic and hence military potential, quite apart from the bomb," and that his "whole career as dictator had been a testimony to his belief that production figures were a direct indicator of a given country's power." As a member of the Joint Chiefs of Staff put it in 1949, "if there is any single factor today which would deter a nation seeking world domination, it would be the great industrial capacity of this country rather than its armed strength."Or, as Hugh Thomas has concluded, "if the atomic bomb had not existed, Stalin would still have feared the success of the U.S. wartime e~onomy."
After a successful attack on Western Europe the Soviets would have been in a position similar to that of Japan after Pearl Harbor: they might have gains aplenty, but they would have no way to stop the United States (and its major unapproachable allies, Canada and Japan) from eventually gearing up for, and then launching, a war of attrition.
In his book Wartime, Paul Fussell briefly examined the industrial nature of the Second World War.
[W]hat counted was heavy power and it is the bulldozers, steam-rollers, and the earth graders of the Seabees that constitute the sppropriate emblems of the Second World War. "Perhaps there was a time," says Geoffrey Perrett, "when courage, daring, imagination, and intelligence were the hinges on which wars turned. No longer. The total wars of modern history give the decision to the side with the biggest factories." And in Europe as well as the Pacific, the industrial basis of "victory" was even more clear. As Louis Simpson puts it in his poem "A Bower of Roses," in one battle near Dusseldorf:
For every shell Krupp fired,
General Motors sent back four.
...One Canadian has remembered: "I knew we were going to win the war when I saw the big Willow Run aircraft factory outside Detroit. My god, but it was a big one."
Thus, for those states, like the United States that benefit from immense capitalist-fueled wealth, global deterrence is built in. Mueller even concludes that a standing army and a ready navy are not even especially important. It is the potential for mobilizing large amounts of warmaking machinery that poses the real deterrence to foreign threats.
Nuclear weapons however, remain relevant since they level the playing field for small states.
Not all states — or, more importantly, not even all alliances of small states — can access an enormous industrial output that the North Americans can.
As Mueller explains, those states are already deterred from making war on large wealthy states. Large wealthy states, however, are not deterred from making war on smaller, poorer states.
Thus, for small states, nuclear weapons do have importance as a defensive weapon. North Korea, for example, can't possibly hope to ever win a war of attrition with even a small industrial power. However, if it can deter attack on itself with even a small number of nuclear warheads that can be delivered to the urban centers of its enemies.
Naturally, this only works from a defensive point of view. Nuclear weapons offer no offensive advantage:
Both defensive and offensive realists agree, however, that nuclear weapons have little utility for offensive purposes, except where only one side in a conflict has them. The reason is simple: if both sides have a survivable retaliatory capability, neither gains an advantage from striking first. Moreover, both camps agree that conventional war between nuclear-armed states is possible but not likely, because of the danger of escalation to the nuclear level.
While it's true that maintaining nuclear weapons is somewhat expensive, it's quite cheap compared to maintaining a large conventional navy, air force, and industry from which to produce conventional weapons.
Ultimately, though, what really grants a state or group of states true power to deter attack and invasion is access to large amounts of capital.
Lenin wasn't imagining things when he looked around the world and saw that the capitalist powers of the world were waging multiple wars. He was wrong, of course, that capitalism causes war. But, there is no denying the wartime capability is greatly enhanced by the wealth created through the trade, productivity, and wealth generated by capitalists. Unfortunately, this defensive capability has come with vast offensive capability as well.
Anyone who claims there's too much democracy in the United States needs to keep in mind that American law and policy is ultimately decided by five millionaires at the Supreme Court.
This week, we're being reminded that the Supreme Court of the United States is hearing arguments in the case of a small-time baker who refused to bake a cake for a gay wedding. This, apparently, is a matter of such importance that it requires the intervention of the federal government and its court system to decide for whom a tiny small business shall be forced to bake desserts. In other words, the court's majority of five people will decide for 320 million people what is mandatory for anyone who wants to open a small business in the United States.
The fact that Americans regard this sort of thing as perfectly natural and legitimate illustrates just how thoroughly Americans have abandoned all notions of self government and any opposition to rule from distant, powerful elites.
Opponents of Donald Trump may be wringing their hands about the rise of populism, but the public's continued deference to the Supreme Court illustrates quite well that populism in the United States, far from growing out of control, is quite timid and of no threat to anyone currently in power.
In the discussion of the Court's decision to hear the case, we're reminded of two important issues:
1. The Supreme Court's ability to decide the Constitutionality of every law in the United States — from local ordinances to federal statutes — is based on a fanciful myth.
2. The American legal concept of "public accommodation" essentially abolishes property rights. The proper remedy is to restore property rights — and to steer clear of endless and pointless debates about religious freedom or freedom of speech.
On the first point, see:
"The Mythology of the Supreme Court" by Ryan McMaken - A discussion of how the Supreme Court jealously protects its political power and encourages an aura of manufactured majesty with measures such as prohibiting television cameras in its chambers.
"Abolish the Supreme Court" by Ryan McMaken — in the wake of the death of Justice Scalia, we examined how appointments to the court have always been political appointments, and often have been done for purposes of political payback and pandering to certain special interests. Judges are not, and never have been, lofty legal scholars who steer clear of partisan politics.
"Scalia's Fate" by Jeff Deist: Deist reminds of of several important points about the Court:
Culture wars should not be legal wars. As Ron Paul explained time and again during his years in Congress, the public remains deeply misinformed about several key points:
- The concept of judicial review is a fabrication by the Court, with no basis in Article III.
- Constitutional jurisprudence is not constitutional law.
- The Supreme Court is supreme only over lower federal courts: it is not supreme over other branches of government.
- Congress plainly has constitutional authority to define and restrict the jurisdiction of federal courts.
And on the matter of public accommodation, we've taken a look at the several ways that micromanaging the actions — and even the imagined intent — of small business owners has long been an especially pointed assault on private property orchestrated by the Courts and Congress.
"The Trouble with Public Accommodation" by Ryan McMaken - if we're worried about the availability of resources for disfavored minority groups, the answer lies in more freedom, not less.
"'Discrimination' Isn't About Religion, It's About Private Property" by Ryan McMaken - framing a baker's of photographers as a matter of "religious freedom" ignores the fact the issue is really just about property rights.
Bloomberg today notes that the Mises Institute isn't a big fan of Marvin Goodfriend's war on cash:
Goodfriend’s dislike for cash could become an issue in his confirmation hearings, which are not yet scheduled. Senators could soon be getting an earful from constituents who fear that taking away paper money is a step toward socialism or totalitarianism. Those voices are already being heard. “Is Marvin Goodfriend the Worst Fed Nominee of All Time?” asks a Dec. 1 post [by Tho Bishop] on the website of the Mises Institute, a think tank for the Austrian school of economics. An earlier Mises post in which Goodfriend’s name was first raised said, “Given his radical views on monetary policy, it’s not hyperbole to suggest that Goodfriend’s nomination would represent a genuine danger to the economic wellbeing of every American citizen—or at least those outside of the financial services industry.”
It’s not just the Mises people who want to hang onto paper money. “Cash Means Freedom, Which Is Why So Many Officials Hate It” was the headline on a post by the libertarian Reason Institute last year. Last year, in the Wall Street Journal, financial commentator James Grant attacked a book called The Curse of Cash by Harvard’s Kenneth Rogoff, writing, “The author wants the government to control your money. It’s as simple as that.”
Goodfriend is concerned that the existence of cash makes it harder for the Fed to lower interest rates below zero. In the next crisis, he says, the Fed might want to push interest rates into negative territory to prod people to stop sitting on their money and do something with it, such as consumption or investment, that would get growth going again. But today, the Fed would not be able to push interest rates on checking or savings accounts very far below zero because as soon as it did, people would simply withdraw cash from the banks and store it in the mattress or a vault. The European Central Bank and Swiss National Bank have managed to push rates only slightly negative.
The GOP-controlled House of Representatives is set to further federalize gun laws and gun regulations.
They're doing it, though, under the guise of what sounds like a harmless bill designed to guarantee property rights:
The House is poised to pass a bill that allows concealed carry permit holders from one state to legally carry their guns in any other state — legislation the National Rifle Association has called “their highest legislative priority” in 2017.
But the problem here is that what the House is doing is not reciprocity. Reciprocity, properly defined, is a matter of agreement among the states. It does not involve the federal government. The new bill seeks to further insert the federal government into gun laws by forcing reciprocity on all the states. We explored this important distinction here at mises.org in August:
This issue can be addressed from both a legal and Constitutional standpoint, and from a general philosophical decentralist view:
Suzanne Sherman at the Tenth Amendment Center has already weighed in against the idea on Constitutional grounds, based on two main arguments:
1. Reciprocity laws are compacts made among the states, and are not imposed by the federal government.
2. The Bill of Rights Doesn't apply to the states.
On the first matter, Sherman notes that the proposed legislation would impose reciprocity on the states. This, Sherman notes, is a departure from what we usually mean by reciprocity, which denotes compacts that two or more states have voluntarily entered into.
Many advocates of forced National Reciprocity point to the “Full Faith and Credit Clause” found in Article IV, Section 1 of the Constitution. Such application is likewise problematic because it deviates from the original intent of the clause, lifted directly from the Articles of Confederation without any change to its meaning. This clause, as ratified, simply ensured citizens in one state could own land or property in another with the full rights of a citizen of that state. It in no way implied that one state had to recognize the institutions or licensing of another state. Driver’s licenses are acceptable for passing through various states, but it is, like CCW licensing, by mutual assent of the states. In other words, there is no federal statute mandating that one state must honor another state’s driver’s licenses.
In other words, the sort of "reciprocity" imagined by the backers of nationwide forced reciprocity is a new kind of reciprocity that substitutes federal policy for decentralized state-level policy.
The enormous downside to this is that it federalizes what has long been recognized as largely the domain of state and local governments. Further federalizing gun policy may look like a fine idea right now, but as Sherman notes, it only takes a couple of new anti-gun appointments to the Supreme Court for the whole idea to blow up in the faces of pro-gun advocates. It's far more prudent, Sherman contends, to work against any increase in federal involvement in gun policy.
Sherman is correct.
The second point is about the Bill of Rights. As Lew Rockwell points out,
[T]he purpose of the Bill of Rights was to state very clearly and plainly what the Federal Government may not do. That's why they were attached to the Constitution. The states, under the influence of skeptics of the Constitution's limits on the central power, insisted that the restrictions on the government be spelled out. The Bill of Rights did not provide a mandate for what the Federal Government may do. You can argue all you want about the 14th amendment and due process. But a reading that says it magically transforms the whole Bill of Rights to mean the exact opposite of its original intent is pure fantasy.
Of course, even if the Constitution explicitly gave the federal government the power to regulate guns, it would still be a bad idea to do so at the federal level. As is the case with all types of policy, the federal government is primarily the domain of millionaire politicians who are nearly impossible to influence — or even get a meeting with — unless one is extremely wealthy or has the backing of a large nationwide special interest group. It is unwise to grant those people even more power.
Moreover, if the federal government is going to make new federal laws in this matter, that means it must also enforce them. Will this be done through a new national bureaucracy? Or perhaps through the federal courts? Either way, the federal government will be more involved in crafting, regulating, and overseeing state policy. Republicans claim to be against this sort of thing.
Also key to understandign the importance of decentralization is the fact that decentralization offers a multitude of choices between different regimes in the face of government restrictions and persecution. If only one huge government has been granted the power to protect rights, to where will one go when the government fails to do its prescribed task? On the other hand, when a wide variety of smaller governments are charged with protecting rights, the failure by one regime is not nearly as catastrophic since the offending regime can be far more easily avoided through emigration and boycott than can a large centralized regime.
Thus, it might sound nice to put the federal government in charge of protecting gun rights, but the potential downside is immense given that federal policy can change easily, and then be imposed nationwide.
In the wake of the Supreme Court's Kelo decision on eminent domain, many pro-centralization libertarians complained that the Supreme Court should have outlawed state and local government authorizations of eminent domain.
This was the wrong approach. The correct approach is to support the decentralization of eminent domain powers — and then to outlaw eminent domain at the state and local level.
The idea that some remote government thousands of miles away ought to be micromanaging local affairs is not a libertarian idea. Lew Rockwell explains:
And yet stealing isn't the only thing libertarians are against. We are also opposed to top-down political control over wide geographic regions, even when they are instituted in the name of liberty.
Hence it would be no victory for your liberty if, for example, the Chinese government assumed jurisdiction over your downtown streets in order to liberate them from zoning ordinances. Zoning violates property rights, but imperialism violates the right of a people to govern themselves. The Chinese government lacks both jurisdiction and moral standing to intervene. What goes for the Chinese government goes for any distant government that presumes control over government closer to home.
Thus, the Supreme Court in Kelo ruled the right way.
In the wake of Kelo, what should have happened did happen in many states.
In Indiana, for example, the state government explicitly outlawed the kind of eminent domain that the Kelo decision allowed. Even better, this Indiana law has proven to be a key factor in a recent landgrab by a city government in Indiana:
If there were any doubt about the illegitimacy of the City’s efforts to compel property transfers to a private developer, Indiana’s eminent-domain reform settle the matter in the favor of the Plaintiffs. In 2005, the United States Supreme Court held, in Kelo v. City of New London, that the Fifth Amendment to the Constitution permits government to take private property for the mere purpose of promoting economic development. Less than a year later, Indiana enacted a comprehensive reform statute rejecting the Kelo decision as a matter of state law. The statute prohibits the transfer of property seized by eminent domain to other private parties except under narrow and enumerated circumstances. Under the new law, the fact that property happens to be located in “an area needing redevelopment” is not a justification for transferring it to another private party… Indiana has therefore rejected the kinds of completed transfers that the City is attempting in this case.
So, it seems the intervention of the Federal government wasn't necessary after all.
Nevertheless, whenever some special interest group has a particular pet project, it always wants the federal government to step in and throw down a nationwide ban or mandate overriding all local inclinations and concerns. This is why the slavedrivers of old wanted nationwide fugitive slave laws. It's why modern-day interventionists want a nationwide minimum wage and nationwide gun laws.
Otherwise, an interest group might have to go around the country convincing people to adopt the laws they favor. What a hassle! When you're a huge wealthy interest group, it's much better to just have the federal government hand down a coercive mandate. Problem "solved."
Coinbase, the cryptocurrency trading platform, has been ordered by a federal court to turn over information sought by the IRS relating to more than 14,000 of the site's users. As TechCrunch puts it, the IRS noticed "the number of tax returns claiming gains from virtual currency didn't line up with the emerging popularity of digital currencies like bitcoin as an investment vehicle."
This may be a gross understatement, considering fewer than 1000 US taxpayers reported gains on cryptos to the IRS in recent years. If this statistic is believable, 2% of Americans-- 6 million people-- owned bitcoin way back in 2014. Surely the number must be much higher today. Either they're all buying and holding, or they're not informing Uncle Sam about it. And of course this was one of the great promises of the crypto revolution, perhaps the greatest promise: the ability to transact business away from the prying (and taxing) grasp of governments.
In 2014 the IRS attempted to throw cold water on the party, announcing it would tax cryptocurrencies as "property" (i.e. like stocks or real estate) rather than currency. Bitcoin henceforth would be treated as an investment generating capital gains or losses for most taxpayers.
The effect of this rule would be disastrous for the evolution of cryptos into actual widely-used currencies: taxpayers would need to track the tax basis of their bitcoin just like stocks, but more importantly would have to treat every purchase of a sandwich at Starbucks as a taxable event--i.e. a "sale" of property. Netting out annual gains and losses and tracking every purchase made with cryptos might be a boon to tax preparers, but it's a serious blow for a technology aimed at creating private money.
So far the IRS guidance hasn't mattered much to crypto fans, who in fact buy bitcoin primarily as an investment rather than a currency exchange. And the bigger question of whether the IRS can effectively enforce its rule remains unanswered. But a few newsworthy criminal prosecutions of large bitcoin users who fail to report their activity to the IRS could have a quick chilling effect. At the very least smaller users might get very nervous about using platforms like Coinbase rather than private wallets.
Governments hate privacy, hence the war on cash and their rabid preoccupation with foreign bank accounts. Politicians know they don't like bitcoin, but they haven't figured out what to do about it. In fact, Congress has passed no legislation* specifically addressing cryptocurrencies-- all action has been taken unilaterally by administrative agencies (in particular the IRS and SEC). As a result cryptos have enjoyed a honeymoon period, much like Uber in its early days. Whether this happy interlude can last may depend on whether opponents can frame bitcoin as a sinister tax dodge for drug dealer and the 1% tech cognoscenti.
Cryptocurrencies can fulfill their great promise only if they become truly private money: unregulated, untaxed, un-banked, untraceable, and 100% peer-to-peer. In the meantime, the Feds may treat big bitcoin users like Al Capone and go after them for tax evasion.
*Legislation has been introduced, though it's a long way from passing, that would validate the legality of cryptocurrencies. The potential Trojan Horse, however, is a set of anti- money laundering and drug trafficking provisions.
Should you ever be taxed on “income” that is not, in any meaningful sense, yours?
This is the fundamental question facing Congress in deciding whether to eliminate the deductibility of state income and local property taxes from federal taxable income, a policy change proposed by President Trump. Unfortunately, this question is unlikely to become part of the debate over tax reform. Instead, those who support the president focus on issues that are completely beside the point.
Some are arguing people living in higher tax states “benefit more” from the current system of state and local tax deductibility than people in low tax states. Those who point out this discrepancy often go on to claim this justifies the elimination of the deduction because these differentials between states actually constitute an “unfair subsidy” to those living in high tax states — New York, Connecticut, and California, for example — by those living in lower tax states like North Carolina, Texas, and New Hampshire.
But to call this deduction a subsidy of one set of taxpayers by another is putting the cart before the horse. The first question that needs to be answered is, is it appropriate, from either an ethical or economic efficiency perspective, to tax the revenue used to pay state and local taxes in the first place? If it is not, then any talk of subsidization of one group by another as a result of not taxing these revenues is irrelevant. Plus, in a tax setting, to subsidize means either to directly take income from some and transfer it to others or to benefit some categories of taxpayers by allowing them to operate under a different set of rules than all other taxpayers. The deductibility of property and sales taxes does not fit either of these categories.
Supporters of this change also argue the current system encourages higher taxes at the state and local levels. First of all, it’s not clear why this would justify taxing revenue that, from an ethical or economic perspective, shouldn’t be taxed in the first place. Once again, the cart is going before the horse. But what makes this a rather bizarre argument, particularly for conservatives, is that their remedy is to expose more of a person’s income to taxation at the federal level. They are, in fact, arguing for a transfer of taxing power from state and local governments to the federal government. So much for federalism.
So again, the question that goes begging is, should you be taxed on income that you are not allowed to take ownership of? As a question of morality or tax fairness, it is difficult to see how the answer could be yes. I don’t think anyone would claim that it is morally justified for an individual to be taxed on someone else’s income. But this is exactly the case with income that goes to paying state income taxes and property taxes. It is income we are forced to give up all rights to, with no enforceable promise of anything in return. Morally, as opposed to legally, this money is not our own, i.e., we have no choice about how it is allocated. Therefore, to not allow state income taxes to be deductible from federal taxes is the moral equivalent of taxing people on income that is someone else’s. In this case, it belongs to the state or local government.
One of Cordato's best observations here is that — even if one is okay with the idea of taxation in general — it is totally inappropriate to tax income that the taxpayer is being forced pay as taxes. Income that is taxed is never really income at all. It's just money the taxpayer must hand over involuntarily without being able to save it, spend it, or do anything other than watch it go straight out the door to the government. To call this money "income" is thus absurd. But this doesn't stop that advocates for the elimination of the deduction on those taxes. A good sampling of their demands for more taxes can be found in their response to my article on the topic. They're so fired up about the imaginary "subsidy" that the deduction creates, they want to tax "income" that isn't income at all.
President Donald Trump has nominated Carnegie Mellon University professor Marvin Goodfriend to be a member of the Federal Reserve Board of Governors.
We reported back in June that Goodfriend was likely to be nominated. As a governor, Goodfriend leaves much to desired.
He has criticized the use of QE, but, as Bloomberg notes,
Goodfriend thought the impact of QE was questionable, at best. Instead he made a case for an even more unorthodox idea: negative interest rates. He conceded, however, that a sustained policy of negative rates might require abolishing paper currency, a step that would likely prove unpopular.
In other words, Goodfriend has problems with the radical policy of QE. The solution? The ultra-radical policy of negative interest rates.
As Tho Bishop has pointed out, multiple vacancies on the Fed board gives Donald Tump the opportunity to drastically move the Fed in a new direction. So far, though, we're just looking at more of the same.
Here's Bob Murphy on "The Nuttiness of Negative Interest Rates."