Power & Market

Money-Supply Growth Near a Ten-Year Low As Lending Slows

01/16/2018Ryan McMaken

Growth in the supply of US dollars remained near a multi-year low in December, growing 2.9 percent, year over year.

ams_1.png

In November, year-over-year growth in the money supply fell to a 129-month low, growing 2.7 percent. The last time the money supply grew at a smaller rate than November 2017's rate was during March 2007 — at a rate of 2.1 percent. 

The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.

The "Austrian" measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler's checks, and retail money funds). 

M2 growth also slowed in October 2017, falling to 3.0 percent.

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of falling money-supply growth. 

One factor behind slowing money-supply growth is likely a slowing in new loans being made by commercial banks. As we can see in the latest data from the Fed, commercial and industrial loans were up only 0.9 percent in November 2017, compared to November 2016. That's the smallest growth rate recorded since April 2011. The overall trend in loans growth is similar to what we saw in 2009, during the last recession. 

loans_1.png

(Thanks to the intervention of central banks, of course, money supply growth in recent decades has never gone into negative territory.) 

Nevertheless, as we can see in the graph of money supply growth above, significant dips in growth rates show up in years prior to a economic bust or financial crisis. The current trend is an unusual one in which growth in AMS is smaller than it is in M2. In the past this situation has often pointed toward a recession. 

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Minimum Wage Laws: More Losses at Red Robin

01/09/2018Mark Thornton

The Red Robin chain of 570 restaurants has decided to eliminate busboys due to rising labor costs. Its business is mostly in western states several of which have raised the local minimum wage rate. Previously they eliminated the job of "expediter" who prepared plates in the kitchen due to rising labor costs. Clearly the labor force is losing jobs due to the increases in the minimum wage. However, also notice that the cook and wait staff are going to take on new responsibilities in terms of preparing plates and cleaning tables. This means that customers are also losing in terms of time, quality of service, cleanliness, and the visual appeal of their meals.

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Murphy on Bitcoin and the Regression Theorem

01/02/2018Tho Bishop

Based on how frequently the subject came up with friends and families during the holidays, I have a feeling that the topic of cryptocurrencies will not be going away in 2018. 

One question I see frequently raised in online Austrian circles is how Bitcoin and other crypto fit with Mises's regression thereom, and so I wanted to share a great blog post by Bob Murphy in 2014 on this topic to help clarify the subject for any interested readers:

It was necessary for Mises to come up with his regression theorem–which traced the purchasing power of money back to the time at which it was valued as a mere commodity in direct barter–in order to ensure that his application of subjective value theory didn’t set up an infinite regress. Since Mises was ultimately explaining today’s purchasing power of money by reference to observations of its purchasing power yesterday, it seemed that he was merely pushing back the problem one step, but not really explaining the value of money in a logically complete way. Yet Mises pointed out that it was not an infinite regress; once we reached the historical point at which the money good was used in direct exchange, then standard price theory took over and the regress stopped.

So, what relevance does this have to Bitcoin? The short answer: none whatsoever. There is no question that people today have a way of estimating the purchasing power of Bitcoin; they can look up the spot price online. If we object that the current price is largely dependent on yesterday’s price, then we start back with the regress. And where do we stop? In early 2009 when the first Bitcoin transactions were negotiated, including a pizza that sold for 10,000 BTC.

If Austrian economists want to say, “But those people had no basis for saying whether that pizza should have been 100 BTC or 1 million BTC!!” OK fair enough. But they did decide, somehow; those initial transactions provided a frame of reference that guided subsequent transactions involving bitcoins. If you want to argue that this odd origin means that subjective value theory can’t be applied to Bitcoin, OK, then so much the worse for subjective value theory.

People right now are exchanging bitcoins against “real” goods and services, and the sellers intend to use at least some of the acquired bitcoins to obtain other “real” goods and services down the road. There is no question that Bitcoin is currently a medium of exchange, though I would not christen it a money yet.

Some people concede that Bitcoin could exist temporarily, but that it would by its very nature be in a bubble with a fundamental value of zero. OK, but by the same token then, the US dollar has been in the same situation for 43 years, and the only reason this is in peril is that the authorities have been printing more dollars with reckless abandon (something that can’t happen under Bitcoin). So when people say, “Bitcoin will never last as money,” are they conceding that yes it might be the world’s reserve currency for a half century?

In conclusion, Ludwig von Mises’ regression theorem has nothing to say about the empirical question of whether Bitcoin will move beyond a medium of exchange and become a true money. If you think that subjective value theory somehow “proves” that a digital currency can never get off the ground because nobody would have any experience with which to evaluate it, then you are simply wrong; it happened in 2009.

 

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Max Boot Discovers His White Privilege

12/28/2017Ryan McMaken

Back in the wake of 9/11, it was harder to find a more pro-war member of the conservative establishment than Max Boot. Boot has now spent abour two decades advocating for non-stop global war in pursuit of an American empire than he he wholeheartedly endorses. 

Nor am I putting words in his mouth. Boot, after all, wrote an article in 2001 called “The Case for American Empire.” He has been an unabashed proponent of bombing and starving foreigners in pursuit of nation-building and "spreading democracy." He's a vociferous defender of torture. American taxpayers, of course, get to pay for it all, both in terms of tax dollars, and in the ongoing shredding of the Bill of Rights which Boot supports. Most of the interventions Boot supports have done little more than make the world safe of Al Qaeda and other terrorist groups that have sprung up in the wake of Boot's favored regime changes. And don't expect a mea culpa on any of that any time soon. 

Those who have paid with their lives, however, have been mostly foreigners, most of them with brown skin. 

But now Max Boot has miraculously discovered his "white privilege" as he reveals in a recent article for Foreign Policy. 

Anyone who knows Boot's history of lusting for the blood of non-white innocents in foreign lands will have a hard time reading his tweet on the matter in a non-sarcastic voice. And yet, he is apparently trying to be serious when he says "my consciousness has been raised":

boot1.PNG

But why the sudden change of heart?

Well according to hard-left journalist Cailtin Johnstone (who is currently one of the most interesting leftists writing right now), Boot is cozying up the left because he needs the left as an ally against Trump. 

It turns out that in spite of Trump's posturing, people who actually voted for Trump — and possibly Trump himself — are not nearly are pro-war as Boot would like. The answer? Pander to the left. 

Johnstone writes

This spectacularly evil man [i.e., Boot], who wrote an essay titled “The Case for American Empire” just weeks after 9/11 in which he called in plain English for America to “unambiguously to embrace its imperial role,” is now seeing his latest essay shared eagerly by Democrats everywhere enthusiastically exclaiming “Look! See? This conservative gets it!”

I’m seeing some progressives arguing that Boot’s sudden public recognition of his white male privilege is intrinsically worthy of praise and acceptance, and that the proper response is to applaud him for it, not spit in his face. These people are wrong. Max Boot did not have some personal epiphany about race and gender dynamics which he felt like sharing in Foreign Policy magazine (the obvious place everyone goes for publication of their enlightening insights into privilege and inequality); Max Boot is courting Democrats because his war-hungry ideology is being increasingly rejected by Republicans.

If you want to see why neocons are courting Democrats with increasing desperation, check out the response to Boot’s latest essay by Fox’s Tucker Carlson, who has come to align with the popular anti-interventionist sentiments of Trump’s base, or Carlson’s debate with Boot on his show back in July...

boot2.PNG

Meanwhile what have Democrats been doing? Supporting escalations with Russia based on accusations with no evidence that are reported as fact by the mainstream media in the exact sort of manic, violent, fact-free climate we saw in the lead up to the Iraq invasion (an invasion that Max Boot says nobody needs to repent for). Resistance hero Keith Olbermann says he owes George W Bush and John McCain an apology for the times he disagreed with them, and MSNBC’s Joy Reid openly admitted that she prefers people like Boot as allies instead of actual leftists and progressives...

Reid’s comments are typical of the way the cult of anti-Trumpism has mainstream Democrats swooning over Bush-era neocons like they’re the Kennedys reincarnated instead of a bunch of child-butchering war profiteers. Just check out the top comments under this “Gosh I’m so woke all of a sudden!” tweet by neocon psychopath Bill Kristol:

boot3.PNG

In reality, nothing Trump has done in his administration so far is anywhere remotely close to as evil as the invasion of Iraq. The fact that hatred of the sitting president has Democrats so desperate they’re not only forgiving the crimes of vestigial Bush neocons but also helping them in their agenda to sabotage any movements toward detente with Russia shows just how brutally efficient the psychological manipulations of the establishment propaganda machine have become.

If Johnstone is right, this is actually good news. Yes, it's true that leftists have a habit of overstating things the right wing does. The left is often claiming that conservatives are about to slash tax rates to near-zero levels, or "de-regulate" the economy, or mandate prayer in schools, and so on. None of these things ever come even close to happening, of course. So, this may be yet another case of a leftist misreading the magnitude of a movement on the right. 

On the other hand, Johnstone is right that its the Hillary Clinton wing of the DC establishment that seems most bent on world war with the Russians who have about 7,000 nuclear warheads. It's the left which has launched the new McCarthyism in which anyone who disagrees with the media narrative on Russia is "Putin's agent." Foreign policy hysteria, is at least as much a thing of the left right now, as of the right. 

So, maybe Johnstone is onto something. She does miss that domestic policy has always taken a backseat to aggressive foreign policy for people like Kristol and Boot. She misses that neo-conservatives have long actually leaned left in their views on social policy. So, the sudden embrace of the "white privilege" narrative by Boot isn't as hard to believe as Johnstone might think. It is hard, however, to read the comments of Boot and Kristol as anything other than pandering in an era when Kristol, et al, fear that maybe, just maybe, Trump won't give them all the wars they want. Trump is obviously good for lots of "tough talk," but then again that was also true for Ronald Reagan who never perpetrated anything like the bloodbaths caused by his successors Bush I and Bush II. Maybe that's what Boot is most afraid of. 

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Marvin Goodfriend Nominated for Fed Board of Governors

11/30/2017Ryan McMaken

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." 

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Mises, Hoppe, and Rothbard: On the Foundations of Liberty

11/20/2017C.Jay Engel

[Reprinted from the site Austro Libertarian.]

The debate over the proper philosophical foundation for economics, ethics, and political theory (which, being focused on the justification for the use of force in society, is a particular application of ethics), are all grounded in the study of knowledge; or, epistemology. This is why the first hundred pages or so of Ludwig von Mises’ treatise Human Action is pure epistemology; a dry subject, but nonetheless imperative. Ideas which are to be argued and defended must have intellectual justification. There is no point in engaging in argumentation if there is no justification for one’s position. When we state that we subscribe to the Austrian School of economics, we are saying that we reject the empirical basis of other schools –whether they be Monetarism, Keynesianism, Marxism, Classicalism, etc. –and we embrace the rationalist or apriori basis of the Austrian School.

To be an Austrian economist is to accept that economic propositions are understood independent of experience and empirical observation. They are facts that must be learned by the employment of the laws of logic and do not depend on all the plethora of data and statistics and number-crunching of the majority of widely accepted economic schools of thought. They cannot be falsified by empirical observation anymore than any logical syllogism can be falsified. No amount of testing and historical analysis can falsify the fact that 1+1=2.

The starting point of the Austrian methodology is that “human beings act purposefully.” From this, more propositions are deduced and derived. Mises was the first to really hone in on this “axiom.” However, Mises and Hoppe justify that starting point in a different way than does Rothbard. Mises and Hoppe, being neo-Kantians, justify it rationalistically; that is, they consider that to deny this proposition is to affirm it. For one cannot deny that humans act purposefully without acting purposefully. Therefore, this axiom is a result of the application of the laws of logic and is dependent on an apriori way of thinking.

In slight distinction with Hoppe and Mises, Rothbard finds his epistemological roots in the empirical tradition of Thomas Aquinas. Thus, he considers the proposition that “human beings act purposefully” to be founded on experience, on observing both one’s self and other humans.

 

In the realm of political theory and ethics, these three “Austro-libertarian” intellectual giants have a bit more diversity. While Mises did not take libertarian principles as far as Rothbard and Hoppe (to anarcho-capitalism), they can all be seen as members of the libertarian tradition. Mises’ case for a libertarian society was utilitarian. The free-market system, for Mises, is so powerful and beneficial for mankind, that it alone must be demanded as compared to all other systems whether communistic, fascistic, interventionist, and their variations. For the sake of prosperity and human flourishing, only a free society can achieve these ends. Any government promises to act in the place of the free society in pursuit of a better world, can be proven as impossible based on economic theory. And in all his statements about the benefits of the free market and capitalism, Mises was right.

And yet, as Hoppe noted

[Mises] favors life over death, health over sickness, abundance over poverty. And insofar as such ends, in particular the goal of achieving the highest possible standard of living for everyone, are indeed shared by other people, as he assumes they generally are, as an economic scientist Mises recommends that the correct course of action to choose is a policy of laissez faire. And doubtlessly, insofar as economics can say this much, the case for laissez faire is a highly important one. However, what if people do not consider prosperity to be their ultimate goal? As Rothbard points out, economic analysis only establishes that laissez faire will lead to higher standards of living in the long run. In the long run, however, one will be dead. Why then would it not be quite reasonable for a person to argue that while one perfectly agreed with everything economics had to say, one was still more concerned about one’s welfare in the short run and there, clearly for no economist to deny, a privilege or a subsidy would be the nicest thing? Moreover, why should social welfare in the long run be one’s first concern at all? Couldn’t people advocate poverty, either as an ultimate value in itself or as a means of bringing about some other ultimate value such as equality?

In other words, Mises is to be commended by showing the potential of the free market and its results. But why are the results good? Economics does not establish what is right and wrong. Powerful and rich kings and tyrants have no reason to desire the prosperity for many that the capitalistic and free markets produce. Mises however, denied that ethical propositions could be rationally defended. His utilitarianism was the only thing that he was left with.

Rothbard rejected his master’s Utilitarianism. We ought to hold him in high esteem for the simple fact that he had the courage to reject the relativistic solutions of so many in the present age. Mises was certainly not a cultural relativist, and in fact was a defender of Old World mannerisms, behavior, and social respectability, but these things came from his Austrian heritage and not from any justification via pure reason.

In dissenting from utilitarianism, Rothbard sought a transcendent ethic that was binding on all people at all times. Rothbard’s Natural Law libertarianism was built on the normative propositions surrounding the fact that man has ownership in his body and external property. Ownership entails that the owner has the exclusive right to determine the use of the property in question. The nature of this ownership is such that use of the property by a non-owner is ethically wrong. Thus, man is free to use his property in accordance with his desires by virtue of the fact that no one has the moral authority to prevent such use. The implication of this, of course, is that the boundary of man’s use of his own property is the property rights of those in society. Thus, for Rothbard, the property-rights social order was of an ethical nature, not a utilitarian one.

Hoppe however, being a strict apriorist, rejects both Rothbard’s Natural Law empiricism as well as Mises’ utilitarianism. His view is that libertarian theory ought to be defended with the very same methodology as his Austrian theory. This is important. And when he first introduced this idea, it was hotly contested and quite controversial in libertarian circles. If Mises was a Utilitarian and Rothbard a Thomist, Hoppe has made the praxeological case for a private property order.

It is his contention that the goal of political theory to provide norms which prevent conflict. Without the possibility of conflict, there is no need for a political theory. But conflict exists in a world of scarce resources and therefore property assignment rules are to be demanded. In order for one to justify any of these rules, that is, in order to put forth an argument in defense of a political theory, one must presuppose self-ownership. One must assume at the outset that he owns the body through which he (man is spirit, not body) communicates and justifies his position. Thus, Hoppe finds the same logical potential here as in his justification for the economic “Action axiom” described above. For if one seeks to deny that humans have ownership over their bodies, but in engaging in argument in order to deny this they exercise or prove this belief, they would only be contradicting their presuppositions. Thus, for Hoppe, any political theory except the libertarian one is a contradictory theory.

To be clear, this is not a statement of “ought.” It does not purport to explain why it might be wrong for someone to steal or murder, only that those things cannot be rationally justified. He has sought to avoid the is-ought problem of philosophy altogether. No political order can be rationally defended except the Austro-libertarian one without falling into self-contradiction. But, the critic may wonder, why is it bad to contradict oneself? Surely the criminal or politician (but I repeat myself) cares not one wit for the laws of logic. And Hoppe recognizes this critique. His answer however, is that he is only concerned with what can be rationally defended.

The Austro-libertarian property rights theory and the Austrian School economic theory need an epistemological foundation. The great debate is what, exactly, that foundation is. Studying the distinctions within the Austro-Libertarian world is a rewarding and illuminating effort.

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Many Small Private Colleges Are Doomed

11/10/2017Ryan McMaken

Inside Higher Ed reports that yet another small private college is closing

Two weeks ago, Memphis College of Art said it would close. Also last month, Grace University, in Nebraska, announced plans to shut down, and Wheelock College announced plans to merge into Boston University.

In another sign of the challenges facing small private colleges without substantial financial resources, St. Gregory's University, in Oklahoma, said Wednesday that it would end operations at the end of the fall semester. The university is a private liberal arts institution about 40 miles from Oklahoma City. 

Last summer, Marketwire covered the topic with its article "Why so many small private colleges are in danger of closing" which analyzed how small colleges are having to offer discounts on tuition to get people in the door. Larger institutions, both public and private, aren't have this problem. 

The miniscule size of some of these colleges is astounding. The Chronicle of Higher Ed reports

Of the 1,600 private nonprofit colleges and universities in the United States, almost 30 percent have enrollments of under 1,000 students. And though closings have amounted to less than one percent of private colleges, according to David Warren, president of the National Association of Independent College and Universities, a Moody’s Investors Services report last fall indicated that the pace appears to be increasing. As we know, when one of the more recognizable small institutions is threatened with closure — Sweet Briar, Mills, Antioch — and brought back from the brink, at least temporarily, there follows a flurry of new stories about small colleges and the economic peril they face.

Needless to say, its hard to take advantage of economies of scale with an institution that has only a few hundred students. The overheard costs of old buildings alone must be enormous. 

And from a student's point of view, it's hard to see why many of them would want to drop everything for 4 years and move to a small town in the middle of nowhere to attend a tiny college with few resources, and which few people have even heard of outside the surrounding region. 

Even worse is the fact that these small private colleges tend to be incredibly expensive. Nowadays, few people have the resources and leisure time to pay $80,000 for an education at a small college in a small town where there are few opportunities for earning income to supplement one's living expenses. 

Indeed, many of these colleges have more the feel of a resort rather than a serious educational institution. Many of them are in bucolic settings with old-timey buildings that help one re-enact "the college experience" one sees in television shows and movies. And in the end, for those who earn degrees of little value, such as a women's studies degree, this is essentially what an "education" at these institutions amounts to: a very costly four-year vacation from the realities of the world. 

For more savvy consumers of education, of course, a large university in the heart of a metropolitan area makes much more sense. These universities have laboratory resources. They have better faculty. They have access to better internships with businesses and hospitals and for part time jobs that can help pay the bills. And, of course, if one goes to a public urban university (such as IUPUI in Indianapolis) one is likely to leave school with actual job opportunities after paying a mere fraction of the price necessary to attend No-Name U in Tinytown, Illinois. 

Moreover, if people stopped blowing tens of thousands of dollars on these schools, we'd hear less about the immense amounts of debt that many students take on and then claim they had to borrow in order to get an "education." A lot of the time, these huge debt levels were taken on to finance four years of not working in a charming small-town atmosphere, all the while claiming such expenses were absolutely necessary. 

For all of these reasons, over time, we'll see more and more of these small colleges go away. Once interest rates in student loans start to go up — which is a certainty in the medium- and long-term — these Vacation Colleges are going to look even less attractive than they do now, and they'll become a niche market for the wealthy and/or clueless. 

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Mark Thornton Explains Why We Must End Heroin Prohibition

11/08/2017Mark Thornton

"Mark Thornton returns to the Scott Horton show to discuss his latest articles for the Mises Institute “The Real Cause of America’s Opioid Epidemic” and “Big Pharma Makes Drugs that Please Regulators, Not Customers.” Thornton makes the case for why legalizing heroin—and all drugs—would be a major step towards solving the opioid crisis. Instead, because of FDA regulations, doctors and pharmaceutical companies are not held liable for the awful consequences of their use. According to Thornton, and counter to popular opinion, lack of government regulations is what will actually regulate the quality of the product on the market."

 

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Money-Supply Growth Falls Yet Again, Dropping to 116-Month Low

11/07/2017Ryan McMaken

Growth in the supply of US dollars fell again in September, this time to a 116-month low of 3.4 percent. The last time the money supply grew at a smaller rate was during January 2008 — also at a rate of 3.4 percent. 

ams.png

The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.

The "Austrian" measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler's checks, and retail money funds). 

M2 growth also slowed in September, falling to 5.1 percent, a 76-month low. 

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of falling money-supply growth. 

Current trends in money supply growth suggest a slowing in loan activity due to a lack of good borrowers, among other possibilities. Given that savings rates have fallen to 10-year lows in recent months suggests that new borrowers may be increasingly hard to find for lenders. 

Thanks to the intervention of central banks, of course, money supply growth in recent decades has never gone into negative territory. 

Nevertheless, as we can see in the graph, significant dips in growth rates show up in years prior to a economic bust or financial crisis. The current trend is an unusual one in which growth in AMS is smaller than it is in M2. In the past this situation has often pointed toward a recession. 

For more insights into what's affecting money supply growth, we can look at loan activity, such as the Federal Reserve's measure of industrial and commercial loans. 

In this case, we find that the growth rate in loans was at 2 percent in September. That's the second-lowest rate we've seen since 2004. Growth is down substantially from where it was in 2015.

loans1_0.png

We find similar trends in real estate loans, although not to the same extent. Real estate loan growth was at 4 percent in September, a 29-month low. 

realestateloans.PNG

When commenting, please post a concise, civil, and informative comment. Full comment policy here.

Malice: In Western World, Fragmentation Is the New Normal

10/25/2017Tho Bishop

Great article from Michael Malice on the growing trend of political decentralization: 

"It is only in politics where a binary option is the norm—and we are experiencing the collapse of this in real-time. The phenomenon is strongly underway across Europe. Neither 2017 finalist for the French presidency came from one of the two major parties, just as had been the case in Austria in 2016. In the same way that it takes something truly extraordinary (say, the Super Bowl) for any given network to manage a majority of the viewing audience, one by one it is becoming increasingly difficult for European parliaments to form governments at all—let alone pass legislation."

Read more at Observer 

When commenting, please post a concise, civil, and informative comment. Full comment policy here.
Shield icon power-market-v2