Power & Market
Breaking up the United States, a view thought dangerous and toxic way back in 2015, continues to trickle out in mainstream political conversation.
The latest example comes from Jesse Kelly at The Federalist:
This idea of breaking up the country may seem a bit outlandish now, but you won’t think so once real domestic unrest comes to your town. Our political disagreements have become a powder keg, one that already would have blown if conservatives had liberals’ emotional instability.
Nobody is expected to cheer for this split. Cheering is not a normal reaction when couples get a divorce. We cheer for old married people on their fiftieth wedding anniversary.
But life is imperfect. Life is hard. We both now agree that living under the other side’s value system is wholly unacceptable. The most peaceful solution we Americans can hope for now is to go our separate ways. So let us come together one last time and agree on one thing: Irreconcilable differences.
John C. Williams will be taking his talents to New York, as the San Francisco Fed President has been announced as the successor to William Dudley. The selection, made by bank representatives within the New York Fed, is the latest example of the Federal Reserve maintaining the status quo.
Williams is a career academic who collected his first Fed paycheck after completing his PhD in 1994. As a current FOMC member, Williams has been a reliable vote in support of the moderate interest rate increases we've seen over the last few years.
With Republicans in DC increasingly interested in Fed reform, Williams's history offers a mixed bag. He has certainly flirted with proposals such as NGDP targeting, but he has also been a vocal supporter of Fed flexibility in a time of crisis. These views are reflected in his academic work, such as a 1999 Fed paper which touted that simple monetary policy rules may "very effective at minimizing the fluctuations in inflation, output, and interest rates," they must also take into the complexity of the real world. In other words, monetary rules are great until they aren't.
Williams is more reliable in defense of the Fed's most important - and controversial - policy tool, excess on interest reserves. In fact, as Patrick Barron noted in 2011, Williams believes IOER and other Fed actions represent a "Brave New World" in monetary policy:
One wonders if Mr. Williams ever read Aldous Huxley's chilling book warning the world of the threat to individual freedom by a tyrannical one-world state. If he had I doubt that he would have included "Brave New World" in the title of his speech.
But perhaps he selected this title on purpose! For Mr. Williams's speech was an unvarnished plea to recruit academics as co-conspirators to spread as economic truth the Fed's latest make-it-up-as-we-go-along, and increasingly panicked, monetary interventions masquerading as well-thought-out policy. The speech was nothing less than an admission that the Fed's monetary theories have failed, that it is experimenting with new ones, and that it wants academia to endorse whatever its latest policy experiments happen to be and incorporate them into college curricula. Here are his very words:
We depend upon educators like you to explain how the Fed works and how our policies affect the economy. We all benefit when the public understands what we do and why, so we are very grateful for the work you do.
Mr. Williams launched into a rather disjointed defense of the reasons that the Fed had to employ new monetary policy tools. (He proudly declared that, of the 12 policy tools on the Fed's own website, 9 of them did not exist four years ago.) I bet you he didn't realize that one reason monetary policy had to change was because of advances in the payment system. It seems that our ability to use debit and credit cards for purchasing goods and services has made traditional monetary aggregates obsolete. Again, in his own words:
How do 1950s theories of cash and checks apply in a world in which you and I can instantly take out a loan of several thousand dollars with the swipe of a card at the cash register?
It is obvious that Mr. Williams has never read Ludwig von Mises's The Theory of Money and Credit.
Unfortunately the most vocal criticism of Williams's selection will not come from his embrace of Bernanke-Yellen's radical monetary policy, but rather the fact he does not fit the push for "diversity" that Elizabeth Warren and other progressives desire. Of course, as Jonathan Newman noted in 2016, the policy aim of the push for diversity is keeping interest rates low - seen by misguided progressives as a benefit to the poor. The tragic irony is that, of course, those are precisely the ones hurt the most.
In Friday's article on Mexico homicides, I briefly mentioned the myth that Mexican homicides are driven by American guns. This myth drives so much of the rhetoric about Mexican crime, that it bears some examination in slightly more detail.
For example, in the wake of the Florida shooting, The National Observer ran an article titled "More guns, less crime? Not according to the data." The article centered around the idea that crime in Mexico is a result of "too many" American guns. The central premise of the claim is that an overwhelming majority of guns used for illegal purposes in Mexico come from the United States. The National Observer claims:
The aggregate data almost certainly understates the global impact of American guns. According to the U.S. Government Accountability Office, the vast majority of guns seized and traced in Mexico are of American origin. About a quarter of these weapons are high-caliber weapons, such as AK and AR-15 type semiautomatic rifles.
But, Stratfor has provided some pretty damning research for that position in an article titled "Mexico's Gun Supply and the 90 Percent Myth." The research concludes that the calculations behind the "90 percent myth" are so sketchy as to be extremely misleading. Specifically:
Interestingly, the part of this argument pertaining to guns has been adopted by many politicians and government officials in the United States in recent years. It has now become quite common to hear U.S. officials confidently assert that 90 percent of the weapons used by the Mexican drug cartels come from the United States. However, a close examination of the dynamics of the cartel wars in Mexico — and of how the oft-echoed 90 percent number was reached — clearly demonstrates that the number is more political rhetoric than empirical fact.
By the Numbers
As we discussed in a previous analysis, the 90 percent number was derived from a June 2009 U.S. Government Accountability Office (GAO) report to Congress on U.S. efforts to combat arms trafficking to Mexico (see external link).
According to the GAO report, some 30,000 firearms were seized from criminals by Mexican authorities in 2008. Of these 30,000 firearms, information pertaining to 7,200 of them (24 percent) was submitted to the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for tracing. Of these 7,200 guns, only about 4,000 could be traced by the ATF, and of these 4,000, some 3,480 (87 percent) were shown to have come from the United States.
This means that the 87 percent figure relates to the number of weapons submitted by the Mexican government to the ATF that could be successfully traced and not from the total number of weapons seized by Mexican authorities or even from the total number of weapons submitted to the ATF for tracing. In fact, the 3,480 guns positively traced to the United States equals less than 12 percent of the total arms seized in Mexico in 2008 and less than 48 percent of all those submitted by the Mexican government to the ATF for tracing. This means that almost 90 percent of the guns seized in Mexico in 2008 were not traced back to the United States.
The remaining 22,800 firearms seized by Mexican authorities in 2008 were not traced for a variety of reasons. In addition to factors such as bureaucratic barriers and negligence, many of the weapons seized by Mexican authorities either do not bear serial numbers or have had their serial numbers altered or obliterated. It is also important to understand that the Mexican authorities simply don't bother to submit some classes of weapons to the ATF for tracing. Such weapons include firearms they identify as coming from their own military or police forces, or guns that they can trace back themselves as being sold through the Mexican Defense Department's Arms and Ammunition Marketing Division (UCAM). Likewise, they do not ask ATF to trace military ordnance from third countries like the South Korean fragmentation grenades commonly used in cartel attacks.
Of course, some or even many of the 22,800 firearms the Mexicans did not submit to ATF for tracing may have originated in the United States. But according to the figures presented by the GAO, there is no evidence to support the assertion that 90 percent of the guns used by the Mexican cartels come from the United States — especially when not even 50 percent of those that were submitted for tracing were ultimately found to be of U.S. origin.
But note that the Observer article goes beyond indicting the US for Mexican violence. By referring to the "global impact of American guns" it's also implied that US guns are responsible for region-wide violence in Latin America.
But, the 2012 Small Arms survey suggests otherwise. First of all, official government stockpiles of guns are a clear source of illegal guns in Brazil:
[M]any weapons are diverted from Brazilian government-controlled stockpiles to the illicit market. Dreyfus confirms this finding, showing that 18 per cent of firearms that have been traced back to their origins stem from official institutions, including the military police and the army.
Illegal weapons are also tracked back to government sources in Mexico, as the Stratfor report notes:
There are also many .45-caliber and 9 mm semiautomatic pistols and .357 revolvers obtained from deserters from the Mexican military and police, purchased from corrupt Mexican authorities or even brought in from South America (guns made by manufacturers such as Taurus and Bersa).
But, if we want to blame the US for Mexican guns, there is one place we can truly lay blame: the US government. Famously, of course, there was the "Fast and Furious" debacle in which the US government handed over guns to Mexican cartels as part of a failed and cockamamie plan to track the guns.
But the US has also played a part in putting many guns into the black market through the US's involvement in Central American civil wars in previous decades. The Small Arms Survey notes:
El Salvador and Honduras were the largest recipients of weaponry from the US government in the 1980s and early 1990s, El Salvador because of the war against the communist guerrillas and Honduras because it was the primary base of operations for the US-backed Nicaraguan resistance known as the Contras
These guns later worked their way into black markets in the region.
Another terrible school shooting took place in Parkland, Florida last week and unfortunately many politicians and pundits have used the tragedy – as they often do – to push their own agenda. Many will use the tragedy to argue that Americans should be prohibited from owning guns. As if anti-gun laws would dissuade a disturbed or violent individual intent on causing harm. Those intent on mass murder don’t obey gun laws.
For example, why do those calling for more gun control remain silent when armed federal agents raid Amish farms to stop them from selling raw milk? This shows the hypocrisy of those who call for restrictions on private firearms ownership while supporting the use of government violence as a means of controlling our lives.
Unfortunately there are many key questions lost in the race to score political points from the shooting.
Why does it always seem that the shooter in these mass killings has been on some kind of psychotropic drugs? As the New American magazine pointed out this week, at least ten high profile mass shootings have been committed by individuals who “were either on — or just recently coming off of — psychiatric medications.” The young killer in Florida was no different. According to his aunt, he had been on these medications to treat mental problems.
Why is no one questioning these medications – all of which come with labels warning of horrific side effects? Perhaps one reason they are ignored is that the pharmaceutical industry spends billions of dollars lobbying Congress.
Also, how is it possible that the FBI once again missed so many obvious clues that a violent person intent on causing massive harm to others was about to strike? Is the FBI actually this incompetent, or perhaps its focus was in other areas — like meddling in our own elections by presenting “evidence” they knew was flawed to the FISA court to get permission to spy on the Trump campaign?
We’ve heard many stories of how alert FBI field agents tried to alert their bosses before 9/11 that foreigners were taking flight lessons but were not interested in learning how to land the planes.
Is giving the federal government more power to spy on us – as they demand – the answer to stop these terrible crimes? Hardly!
Those who think that giving federal authorities greater surveillance powers might prevent mass shootings should consider that the FBI has been alerted that the latest school shooter had made Facebook posts and YouTube comments talking about his intention to be, as he put it, “a professional school shooter.” But the Bureau failed to properly investigate the tips. If the FBI fails to stop someone who openly boasts about their intentions on social media why should we believe that giving them the power to snoop on every American would increase our safety?
We cannot stop tragedies like this by banning guns. We need to look seriously into the psychotropic drugs that more and more Americans are being prescribed. We need to demand that our elected Representatives demand a real day of reckoning at the FBI. We need to keep focused and ignore those who politicize such events.
Minimum wage laws hurt the most unskilled and least experienced workers in society. They cut off the lower rungs of the ladder to that it becomes far more difficult to enter the workforce without substantial experience. After all, how many employers are willing to take the risk of hiring a workers at 8 dollars an hour when that workers has no references and no experience? Some would. But many more would be willing to do it for 5 dollars per hour.
In practice, fewer than 3 percent of workers earn the minimum wage because as soon as most workers prove they can learn on the job and show up for work, they move above the minimum wage. But, it's that crucial opportunity to get the foot in the door and get a little experience that is hurt by minimum wage laws. Given that 97% of workers are already working above the minimum wage, this illustrates the key importance of allowing wages to be flexible for those not already in the 97%.
Entry into that 97% of workers making above-minimum wage is only hurt by minimum wages because the mandate erases opportunities for workers to prove themselves, even when they have zero experience. Thus, those who are the least promising prospects simply have no chance of getting their foot in the door because they are perceived as being too much of a risk when the employer must pay a minimum wage far above the worker's apparent value.
Were wages more flexible, brining on an unskilled workers would be a far less risky proposition for employers.
As a result of the minimum wage, however, unemployment rises among the least skilled, and income inequality grows.
As we learn in Politico this week, however, supporters of the minimum wage have a ready scapegoat for the minimum wage's failure to bring the most vulnerable workers up to higher wage levels. They'll blame a lack of enforcement by government agencies:
This failure to enforce both the minimum hourly wage — $7.25 under federal law — and rules requiring higher pay for overtime distorts the economy, giving advantages to employers who break the law. It allows long-term patterns of abuse to take root in certain service industries, especially restaurants, landscaping and cleaning. Advocates for lowest-wage workers describe families facing eviction and experiencing hunger for lack of money that’s owed them. And, nationally, the failure to enforce wage laws exacerbates a level of income inequality that, by many measures, is higher than it’s been for the past century.
“Low-income workers are already in this fragile balance,” said Victor Narro of the UCLA Labor Center. “One paycheck of not being able to get the wages they’re owed can cause them to lose everything.”
Minimum wage laws increase income inequality by discriminating most against those "in the fragile balance," but when we fail to see that the least skilled workers are getting work, we will just blame enforcement instead.
This, it seems, is a variationon the "socialism has never been tried!" argument, in which if we just do socialism "harder," this time it will work. This appears to be the mentality in Venezuela right now. When we find that minimum wages don't actually put unskilled workers on the path toward high wages, we'll say "the minimum wage has never truly been tried" and we'll fix it by ramping up enforcement.
In truth, these loophole through which many of these employers - mostly small businesses and other low-capital operations - are passing, are all that's keeping these workers employed at all. If forced to compete with workers at more reliable and highly capitalized operation, they may very well find themselves completely unemployed. Moreover, the small businesses that we're told are cruelly withholding wages are often not paying wages because they're missing payroll due to low revenues. Properly enforcing the laws will just drive these companies out of business. We might say "serves them right" when that happens, but the outcome will also be that all the workers lose their jobs.