Power & Market

People Keep Moving to the Low-Tax, Business Friendly States

06/21/2019José Niño

ZeroHedge recently reported an interesting trend occurring in the United States.

A U.S. Census Bureau map details some interesting patterns. Areas highlighted in purple, where the population is growing, are located in the West and the South. Those in orange, areas where the population is dropping are situated in the North and East. Although the Sun Belt does have considerable allure because of its weather, there are other institutional and economic factors at play.

ercent-pop-change-metro-micro.jpg

For example, seven of the ten counties with the largest population increases were in Texas or Florida . Of note, Florida and Texas don’t feature the kind of income tax boondoggle we see at the federal level and even some anti-growth states like California.

According to the Freedom in the 50 States Index , Florida and Texas are ranked first and tenth in terms of overall economic freedom, respectively. Interestingly, North Dakota has two of the fastest growing counties in the country, McKenzie and Williams County . In the same freedom index, North Dakota is ranked sixth.

On the other hand, there is evidence that some of America’s largest urban centers are shrinking. From 2017 to 2018, New York City has seen a decline in its population. The Wall Street Journal reports that “New York’s population dropped 0.47 percent to 8.4 million by July 2018, compared with the previous year.” Although small, this could be the beginning of a negative trend as the city is starting to embark on a new path of anti-growth policies such as the Green New Deal and its insistence on keeping big spending intact .

The Chicago metro area’s population dropped for four straight years according to the Census Bureau:

“There were 22,000 fewer residents in the 14-county metro area than in 2017, a drop of 0.2 percent, and the first time since 2010 that the area’s population has slipped below 9.5 million people. Cook County, which accounts for 55 percent of the population in the metro area, lost 24,000 residents.”

This is an interesting case study of a larger macro-trend taking place in America. People are fleeing coastal areas and solidly blue states with burdensome governments for the more sleek, affordable, and business-friendly Sun Belt and Great Plains states.

That’s the beauty of competitive federalism, which allows jurisdictions to compete for the best talent and citizens. This is what helped make America and Europe prosperous over the last 500 years.

This type of competitive decentralization should be embraced and expanded upon in order to ensure prosperity for future generations.

Republished with permission.

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Prices and Entrepreneurial Decision Making

Value is subjective. Prices are objective. Subjective value comes from the mind of the consumer, and influences market prices. When an actor chooses, he must forgo other choices, and he is demonstrating a preference for something, revealing part of the rankings of his values. Since perceived value relative to the actor’s value scale influences prices, then all prices are a result of human actions and choices on the market, caused by the actors' values. Tracing back price changes to human actions on the market is part of what an entrepreneur must do in order to understand the market better. Value travels up the structure of production, from the consumer goods to the producer goods. Tracing the implications of prices changes is part of what an entrepreneur does to understand his market.

Hayek calls prices signals. They are signals that are generated by the market through the market process, which is the interaction between buyers and sellers through their transactions with each other (supply and demand). These signals, in the form of prices and their changes, inform entrepreneurs about what's going on, and guide their actions, and this coordination mechanism is scalable and connects everyone. The market and its prices are all that are needed to coordinate a vast number of people's actions with precision. The entrepreneur doesn't need statistics to make a decision on what to invest in. An entrepreneur that doesn't understand this system is missing out on what's really going on and would be at a disadvantage. Austrian Economics with its deductive method, reveals to us the workings of this price mechanism through its theories and its methodology.

Rothbard said in a lecture (paraphrasing), "An entrepreneur knows more about his specific market than any economist or expert. The reason is that he has skin in the game. A lousy entrepreneur would quickly be eliminated from the market. There is a self-selecting process. The economist or expert has no skin in the game and isn't risking anything when he's wrong about the market." The key insight here is that the entrepreneur knows more than any expert about his specific market and its actors. The entrepreneur gets his information from multiple sources, and forms an outlook on what will happen. The entrepreneur may talk to suppliers, customers, friends, he may hear rumors, read news, from these he would construct a narrative, on top of this can use prices, changes in prices and check it against economic theory to see what's true. From all of this the entrepreneur forms his understanding. This understanding plus other things like intuition, gut feeling, that help the entrepreneur form judgments about the future and judge the best course of action in the present. The entrepreneur has to filter out of the noise what information is the most significant, the factors that will influence the future the most.

In understanding prices and tracing the causes of their changes, an entrepreneur can understand his market better. Prices can inform an entrepreneur about what's happening before journalists and news outlets catch on to it. Prices contain within them information, they are the final outcome of a process of buying and selling by many actors, prices are a kind of average of what all the actors think the price should be. Each good has its own price behavior, which is influenced by the good's physical properties, and other properties such as scarcity, it's perceived value, and finally fluctuations in supply and demand, and the behavior of buyers and sellers. Austrian Economics gives the entrepreneur a correct theory that can help the entrepreneur narrow down on what's happening in the market and gain superior understanding of his market. Knowledge of economics can't guarantee success, but it can bring increased awareness of what's going on underneath the numbers and prices. Eventually helping the entrepreneur gain a better understanding of the market, which means the values of the consumers and the actions of the other actors in the market.

Mises says, "The only source from which an entrepreneur’s profits stem is his ability to anticipate better than other people the future demand of the consumers.” Correctly anticipating the actions of market actors and anticipating future prices and preparing for that future state is what generates entrepreneurial profit.

Mises says, "Monetary calculation is the guiding star of action under the social system of division of labor. It is the compass of the man embarking upon production." Prices determine costs, and not the other way around. Prices are determined in the market. All internal costs should be benchmarked to the market prices in order to have the most accurate cost calculation. Monetary calculation includes retrospective accounting of profit and loss, and prospective accounting with its anticipated costs and anticipated profits. If prices change in the market then not only do the present and future look different, but also the past accounts of profit and loss look different. What worked at one time in the past under the cost structure of that time may not work again with current prices. Accounts give a feeling of certainty in their numbers, but they are static. They are an oversimplified static representation of an inherently dynamic phenomenon.

Austrian Economics can help an entrepreneur have a deeper understanding of his market and of accounting. This can help the entrepreneur in making better decisions out of this better understanding. Here we narrowly focus on prices and costs, but there are many other areas of Austrian Economics that are applicable and will be covered in future articles.

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Progressives Love the Poor, So Long as They Live Somewhere Else

05/27/2019Andrew Moran

Winston Churchill famously said that “socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy.” He should have added that it is also an ideology of for thee but not for me. Anytime socialist idealists have an opportunity to practice the dogma outlined in Das Kapital or the teachings espoused by Sen. Bernie Sanders (I-VT), they reject the offer and say, “Maybe some other day, but not right now.” But that won’t stop Che Guevara T-shirt-wearing leftists from encouraging others to accept this way of life, no matter how iniquitous or asinine it is.

This is on full display every day, and it isn’t so much trumpeted by the politicians — we know they say and do anything to attain or maintain power, including offering a treasure trove of free goodies on someone else’s dime. Rather, it is the typical hipster, the celebrity residing in his or her ivory tower, and the social justice warriors on Twitter who demand that others adopt their principles before they adopt these values themselves.

Recently, three instances of this were on display in Florida, San Francisco, and Sweden.

Socialism on Campus

Recently Campus Reform spoke with several university students in Florida about socialism. The website asked these young whippersnappers if they would endorse a policy whereby students with a high GPA would redistribute their grades to those with a low GPA. The students were not exactly enthusiastic about their hypocrisy being exposed, explaining that they work hard for their marks and that it’s unfair to take away someone’s college scores.

“I’m all for helping, but I wouldn’t give some of my points .… I’ve lost a lot of sleep so I don’t know if that would be fair,” one student said.

Another pupil revealed, “I, like, study all day for my grades.”

Perhaps the irony is lost on these kids. Or maybe they think millionaires and billionaires have money trees in their backyards and that they just sit and wait for Federal Reserve Notes to fall from the branches like the apple hitting Isaac Newton on the head.

Kids these days…

Limousine Liberals in San Francisco

It is safe to say that San Francisco is the home of the nation’s wokest progressives. In 2016, just 9,000 people who live there voted for President Donald Trump, so finding someone right of Rep. Alexandria Ocasio-Cortez (D-NY) is about as rare as discovering a sidewalk free from fecal matter. It is also ground zero for NIMBYism, also known as “not in my back yard.”

Last month, Mayor London Breed approved a 24-hour, 225-bed waterfront homeless center in a 2.3-acre empty parking lot in an upscale neighborhood south of the Bay Bridge. The Navigation Center would allow the homeless to bring their lovers and pets so staff could connect these individuals with local resources and services. The affluent are not pleased.

As part of the Safe Embarcadero for All initiative, nearly 300 people have raised close to $100,000 on GoFundMe to pursue legal action to fight the homeless shelter. They fear for the community’s safety, citing city data that show “a third of the homeless are drug users and some are sex offenders,” which they believe could result in an influx of addicts using drugs in the neighborhood.

A counter GoFundMe campaign, SAFER Embarcadero for ALL, was launched , receiving nearly $175,000 in contributions from more than 1,500 donors.

NIMBYism is common in affluent neighborhoods of many metropolitan cities. In 2015, a Toronto charity hoaxed the wealthy left-leaning Leaside community by announcing a new homeless shelter was going to be erected. Nearby residents were “distressed,” complaining that their real estate values would plummet, businesses would see lower foot traffic, and that area of the city would be “ruined.”

Swedes Won’t Take Migrants

Sweden has been taking in hundreds of thousands of migrants from the Middle East. So far, the social engineering experiment has been a disaster, with no-go zones becoming more prevalent and the rich Swedish culture being turned upside down. The country is gradually getting fed up with the government opening its door, hence the rise of right-wing parties that are concerned about ballooning migration.

A viral video making the rounds on the Internet shows a man asking people in Stockholm their opinions on the influx of migrants. He specifically questioned if Swedes should accept refugees into their home, wanting to know if they would consider housing an unaccompanied minor or refugee in their living space. They were amicable in their answers until a real opportunity presented itself.

When he had a refugee with him who needed a place to stay, the responders stuttered and stammered, came up with excuses, and, in the end, nobody took in the unknown foreigner.

These are not the only ones to have reservations about accepting a total stranger into their home. J.K. Rowling, an elitist multimillionaire, tweets about how important it is to let migrants into the U.K., and anyone who questions that is a racist. Unfortunately, despite having an 18-bedroom mansion, she has not housed a single refugee. Hundreds of refugees have established a shantytown near George Clooney’s beautiful Lake Como home in Italy, so why isn’t he letting these people stay in his elegant villa?

What Leftists Have in Common

When Homer Simpson ran for sanitation commissioner in Springfield, he came up with a campaign slogan that would personify the left: “Can’t Someone Else Do It?” It is apropos for those on the left on a wide variety of issues, from taxation to migration and the environment. They lead the charge to let someone else pay higher taxes or assist the poor. It’s akin to the self-righteous virtue-signalers who tweet all day about how white people stole land from Sen. Elizabeth Warren’s (D-MA) ancestors but undoubtedly would refuse to cede their own property to Native Americans.

Democrats love to grab easy political points by alluding to unconscious biases and how there needs to be more minorities and women in public office. Yet, these same individuals never admit to implicit prejudice – it’s always somebody else – and you will not see former Rep. Beto O’Rourke (D-TX) or Sen. Sanders bow out of the race to let a minority or female take his place.

The doctrine of leftism advocates that it is your moral duty to advance pseudo-moralistic social justice. But the leftists’ genuine ethical stance is to sacrifice others before sacrificing themselves. It’s like the old joke about neoconservatives who proudly say they have given to the war effort, by having three cousins and their wives’ brothers die in battle.

Rather than signing a petition and marching in a social justice parade, leftists should instead turn the moral mirror on themselves. If they did, they would see the Picture of Dorian Gray.

[Originally published by Liberty Nation.]

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People Trade. Nations Don't.

03/05/2019Patrick Barron

Through their power to control banking, central banks are unnecessary barriers to commerce. Even those who have spent their entire lives in banking, often in positions of great importance and responsibility, assume that cooperative exchange of goods and services requires a central bank's oversight. But consider a typical trade, whether foreign or domestic. Joe Smith in the US produces widgets. Of course he desires to produce and sell as many as he can at a profit. He has willing buyers in both the US and overseas. Because he manufactures and ships his widgets from the US he is required by legal tender laws to conduct his trade in US dollars. In fact were he to refuse to accept US dollars, by law the buyer could take delivery of Joe Smith's widgets and not pay him at all. But Joe is concerned that the US dollar is being systematically debased by the Federal Reserve Bank and that the dollars he accepts from his sales will depreciate in purchasing power before he can re-employ them to pay for the factors of production to produce more widgets. Therefore, Joe must increase his price to compensate for this currency risk.

But all this changes if the central bank and legal tender laws are eliminated. Joe can accept any form of payment to which he and his buyer agree. Since they both desire to trade, they will use whatever money is the most marketable; i.e., that money that others also will accept willingly. Gradually, sound money will emerge. It may be gold, silver, or something else, but it probably will be a commodity, a certificate (bank note), or account balance that is fully backed by a commodity (one hundred percent reserved).

The commodity itself may be used in hand-to-hand exchange for small, local transactions, but probably most exchange would be conducted no differently than today where electronic tools debit and credit bank accounts. A government controlled central bank is NOT required to settle this transaction. Any honest, private bank could do it and would do it. Nothing more is required than a book entry that increases the gold balance at Joe's bank and decreases the gold balance at his customer's bank, whether foreign or domestic. If Joe and his customer do not use the same bank, a third bank may be involved to settle the transaction. Such a bank is called a "correspondent bank", meaning that both Joe's and his customer's banks have gold accounts there for the purpose of settlement. Many private banks perform this service today, bypassing the Fed.

All trade is conducted by people. The statistics that aggregate a nation's companies' foreign purchases and sales are irrelevant and serve only to perpetuate the fiction that countries trade and not people. This leads to the completely fallacious claim that a nation whose companies and people sell more abroad somehow "wins" or benefits from trade and, likewise, that the nation "loses" if its companies and people in the aggregate buy more abroad than they sell.

This fiction survives only because each nation has a central bank to control foreign exchange and legal tender laws that promote use of its ever-depreciating currency. But if Joe Smith sells widgets to Honda Motors in Japan, each party benefits or the trade would not have occurred. Honda Motors' bank account diminishes by the amount of the purchase and Joe Smith's bank account increases. The reverse would be true if Joe Smith bought raw materials from a Mexican company. If each party benefits as expected from the trade, wealth is increased for the parties involved in the trade. In an unhampered market, of course, there is no need of a national currency or a central bank. 

Political Borders Are Irrelevant to Trade

The irrefutable observation that people trade and not nations leads to the epiphany that political borders and politically based trade statistics are irrelevant, meaningless, not necessary, and ultimately harmful. So-called "trade deficit" statistics lead to calls for monetary debasement to spur foreign trade and even protectionist policies to reduce purchases from people and companies in foreign lands. But such trade is no different than buying produce from a local farmer. You and your local farmer both benefit, just as Joe and his Mexican supplier of raw materials benefit. The world is made more prosperous. The truly tragic consequence of keeping national trade statistics is that such irrelevant yet seemingly important data can lead to international tensions. Today we witness our political leaders branding individual nations to be predatory because their people and companies sell more goods to Americans than Americans buy in return. But where is the predation if one ignores national borders? Buying raw materials from Mexico is no different than buying produce from a local farmer.

Misunderstanding International Trade Can Lead to War

As an informative thought experiment consider what would change if Hawaii were not the nation's fiftieth state and had remained a sovereign nation. Would the impact on the US trade balance of the other forty-nine states composing a slightly reduced US have any meaning from the fact that the US purchased pineapples from Hawaiian farmers who now would be branded as foreigners? Of course not! The same is true if Alaska had remained part of Russia and had not been sold to the US during our Civil War. Would our industries be worse off due to the fact that the oil from Alaska was produced by Russian citizens and not American citizens? Of course not! The oil is the same economic benefit, regardless of who produces it. Think this is unimportant? Consider that there is the potential for military conflict in the very far north over future oil exploration. Russians, Canadians, Norwegians and most ominously Americans all claim sovereignty over these heretofore untapped oil reserves and vow to keep out companies headquartered in foreign lands. This is reminiscent of the imperial wars that racked the European powers for centuries as each tried to monopolize world trade. World War II was caused in large part by the Japanese attempt to control all trade in Asia at the expense of the old colonial powers. Since 1945 the Japanese economy has benefited immensely from simple trade without the need to control its trading partners politically. This should be a lesson to today's world leaders, but don't hold your breath.

Conclusion

A world of peace and increasing prosperity depends upon strictly limiting the ability of governments to interfere in international trade through their central banks and legal tender laws. Eliminating both would expose many economic fallacies that purport to characterize international trade as a competition between nations with their own citizens either winners or losers depending upon whether they are net exporters (winners) or net importers (losers). Central banks not only are barriers to trade and prosperity, they are fomenters of international tension and even war. Time to scrap them. Remember, the US did not have a central bank between the Age of Jackson--after President Andrew Jackson was successful in preventing the renewal of the charter of the Second Bank of the United States in 1837--and just prior to the Great War in 1913 when the Federal Reserve System was founded. During this era, despite fighting a civil war, the US economy grew probably at the greatest rate of any economy in the history of the world.

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Powell Claims No "Elevated" Risk for US Recession, NY Fed Models Disagree

02/12/2019Tho Bishop

Today Jerome Powell got out of the beltway and enjoyed some southern hospitality at Mississippi Valley State University, speaking at the Hope Enterprise Corporation Rural Policy Forum.

Most of the Fed Chairman’s talk was dedicated to talking about how the Fed could the financial needs of rural areas, a questionable claim considering the direct role central banks have played in increasing wealth inequality. He did, however, provide some additional thoughts on the strength of the US economy as a whole.

In particular, when asked about future risk, he said he did not “feel that the probability of recession is at all elevated.”

What’s interesting is that this claim does not follow the models published by the NY Federal Reserve which shows the current risk of recession at the highest they’ve been since 2008.

NY Fed Recession Probability 2.12.jpg
(H/T @TexarkanaFed via Twitter)

Of course, given the poor track record of Federal Reserve models, perhaps more useful is that this rosy view of the US economy seems to contradict the recent policy trends from the Powell Fed.

This includes changes to recent FOMC statements and projections about the rate of future rate increases, as well as indicating a willingness to stall the slow normalization of the Fed’s balance sheet that is currently in process. As he said in late January:

We’re listening carefully with – sensitivity to the message that the markets are sending and we’ll be taking those downside risks into account as we make policy going forward...If we came to view that the balance sheet normalization or any other aspect of the normalization was part of the problem, we wouldn’t hesitate to make a change.

Though the statement was made in carefully managed “Fed Speak”, the message it communicated couldn’t have been more clear – particularly since Powell has long been an inner Fed voice concerned about the size of the Fed’s balance sheet.  The market understood that Trump finally got the Dovish Federal Reserve that he has spent the last year campaigning for. The day of the announcement was the first in Powell's tenure that the market reacted positively to one of his rate-setting announcements. 

Unfortunately for Powell, none of the arguments for “normalizing” monetary policy has changed since Powell first outlined his desires for a slow and gradual wind down. The economic data that the Fed claims to make its decisions off of continue to look strong and the dangers of facing a crisis with the monetary interventionists tools they desire have not gone away. So what has changed? Maybe, just maybe, it’s the perceived risk of a future recession that the Fed’s models, other signals, and a growing legion of economists are projecting.

Of course, in the Chairman’s defense, it would be a mistake to see the Fed’s top role as one of truth teller. The Fed’s job is necessarily a political one, to project an air of confidence and try to maintain confidence in the system. Unfortunately, hot air only goes so far, as Bernanke learned in 2007. 

Luckily for Powell, it pays to play the role of Baghdad Bob for the US economy, as Bernanke’s $1 million book deal and speaking fees illustrate.

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Philadelphia's Soda Tax Was a Win for Politicians, A Loss for Everyone Else

I’ve periodically opined about why politicians should not try to control people’s behavior with discriminatory taxes, such as the ones being imposed on soda.

And I’ve cited some examples of how these taxes backfire.

The big drop in soda purchases after a tax on sugary drinks was imposed in Berkeley.

The big drop in soda sales after a big tax on sugary products in Mexico.

The big drop in soda purchases expected to occur following Seattle’s new tax.

If the following headlines are any indication, we can add Philadelphia to that list.

For instances, this story from the Philadelphia Inquirer.

Jan-28-19-Inquirer.jpg

Or this story from the local CBS affiliate.

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These examples reinforce my view that it is not a good idea to let meddling politicians impose more taxes in an effort to control people’s behavior.

Some of my left-leaning friends periodically remind me, however, that there’s a difference between anecdotes and evidence. There’s a lot of truth to that cautionary observation.

To be sure, I could simply respond by saying a pattern is evident when a couple of anecdotes turns into dozens of anecdotes. And when dozens become hundreds, surely it’s possible to say the pattern shows causality.

That being said, it is good to have rigorous, statistics-based analysis if we really want to convince skeptics.

So let’s look at the results of some new academic research from scholars at Stanford, Northwestern, and the University of Minnesota. We’ll start with the abstract, which nicely summarizes their findings about the impact of Philadelphia’s big soda tax.

We analyze the impact of a tax on sweetened beverages, often referred to as a “soda tax,” using a unique data-set of prices, quantities sold and nutritional information across several thousand taxed and untaxed beveragesfor a large set of stores in Philadelphia and its surrounding area. We find that the tax is passed through at a rate of 75-115%, leading to a 30-40% price increase. Demand in the taxed area decreases dramatically by 42% in response to the tax. There is no significant substitution to untaxed beverages (water and natural juices), but cross-shopping at stores outside of Philadelphia completely o↵sets the reduction in sales within the taxed area. As a consequence, we find no significant reduction in calorie and sugar intake.

Here are some of their conclusions.

We draw several lessons about the effectiveness of local sweetened-beverage taxes from these analyses. First, the tax was ineffective at reducing consumption of unhealthy products. Second, in terms of revenue generation, the tax was only partly effective due to consumers substituting to stores outside of Philadelphia. Third, low income households are less likely to engage in cross-shopping, and instead are more likely to continue to purchase taxed products at a higher price at stores in Philadelphia. The lower propensity for low income households to avoid the tax through cross-shopping leads to a relatively larger tax burden for those households. In summary, the tax does not lead to a shift in consumption towards healthier products, it affects low income households more severely, and it is limited in its ability to raise revenue.

If you’re wondering why consumers responded so strongly, here’s a chart from the study showing the price difference after the tax was imposed.

Jan-28-19-Figure-3_0.jpg

The bottom numbers in Figure 3 show that some sales still occurred in the city, but a persistent gap between city sales and suburban sales appeared.

And here’s what happened to sales inside the city (taxed) and outside the city (untaxed).

Jan-28-19-Figure-4.jpg

Wow. This data makes me wonder if suburban sellers will start contributing to the Philadelphia politicians who have generated this windfall?

Others have noticed how the tax is hurting rather than helping.

The Wall Street Journal opined about the failure of Philly’s soda tax.

When Philadelphia became the first major U.S. city to pass a soda tax in 2016, Mayor Jim Kenney said it would improve public health while funding universal pre-K. Two years in, the policy hasn’t delivered on that elite ideological goal. But the tax has come at the expense of working people… On Jan. 2, Brown’s Super Stores announced the closure of a ShopRite on Haverford Avenue. The supermarket is close to the city limit, and customers discovered they could avoid the soda tax by shopping outside Philly. …the once-profitable store began losing about $1 million a year. …That means fewer opportunities for workers with a criminal record. Mr. Brown’s supermarkets employ more than 600 of them, with the majority in Philadelphia. Some of the ex-cons have become his most-valued employees.

And Kyle Smith explained in National Review how the tax backfired.

Philadelphia’s outlandish soda tax is what Democratic-party politics looks like when it lets its freak flag fly. So many classic elements are there: (failed) social engineering and “think of the children!” on one side, paid for with a punitive tax on poor people and destroyed businesses, which means destroyed jobs, which in turn means lives upended. …Now that beer is, in some cases, cheaper than soda in Philadelphia, alcohol sales are up sharply. …the total loss attributable to the tax in sales of all items was $300,000 a month per store. Other, untaxed drinks also suffered sales declines within the city, suggesting people were simply saving up their shopping trips for when they left town.

I don’t feel compelled to add much to what’s been cited.

Though I will cite a headline from the Seattle Times to reinforce one of the points in the academic study about consumers bearing the cost of the tax rather than the soda companies.

Jan-28-19-Seattle.jpg

And my one modest contribution to all this analysis is this comparison of the winners and loser from Philadelphia’s new tax.

Jan-28-19-Winner-Losers.jpg

For what it’s worth, similar comparisons could be developed for just about every action by every government. Academics call this “public choice” while ordinary people realize it’s just common sense.

Originally published at International Liberty

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Patrick Newman Talks Panic of 1819 on The Age of Jackson Podcast

01/29/2019Patrick Newman

Mises Institute Fellow Patrick Newman recently joined the Age of Jackson podcast to discuss Murray Rothbard's The Panic of 1819.

Topics discussed on the show include Rothbard's analysis of the panic, why he believed it to be the best received of his books among his profession, and why it remains one of the most cited works on the era.

The podcast is available on iTunes, Sticher, and Google Play (search within the app.)

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Peter Klein and Nicolai Foss on Managers in Flat Business Structures

01/18/2019Mises Institute

The online magazine Aeon currently features an outstanding article from our scholars Peter Klein and Nicolai Foss on the trend toward "bossless" business structures. Far from being redundant middlemen, they argue, good managers are needed more than ever even in firms that aspire to flat, decentralized, and democratic organization. 

Klein and Foss challenge the idea that managers will become obsolete, replaced by self-directed and super connected knowledge workers:

This movement is gaining steam for a couple of reasons. First, the bossless-company model arguably captures some tendencies, however inaccurately. Second, it is very much part of the 21st-century Zeitgeist in its emphasis on personal development, resilience and fulfilment through empowering employees, and decentralised and democratic decision processes. There is also a strong moralistic and political undertone to the narrative; in Private Government (2017), the philosopher Elizabeth Anderson argues that firms are effectively totalitarian states, enjoying rights and privileges that would be unconstitutional for ordinary states to impose on their citizens. The historian Caitlin Rosenthal has argued that the factory system, hierarchy and managerial authority are partly derived from the slave system. What can be more morally defensible than getting rid of the remnants of slavery?

Unfortunately, the bossless-company narrative is dead wrong. It misunderstands the nature of management, which isn’t going away, and it is based on questionable evidence. Given these fundamental defects, this narrative is potentially harmful to managers, students and policymakers.

Are the benefits of technology in assembling and organizing modern firms oversold?

While technological miracles such as the internet, cheap and reliable wireless communication, Moore’s law, miniaturisation and information markets have induced sweeping changes in manufacturing, retail, transportation and communication, the laws of economics are still the laws of economics. And human nature hasn’t changed. The basic problem of management and business – how to assemble, organise and motivate groups of people and resources to produce goods and services that consumers want – is still the same. Since the industrial revolution, entrepreneurs have been organising extremely complex activities in firms that are neither completely centralised nor completely flat. Imagine the complexity involved in operating a national railroad, a steel mill or an automobile assembly plant in the 19th and early 20th centuries. These were all ‘knowledge-based activities’ and were conducted in teams organised in various structures. Are things so different today?

Their conclusion:

In short, today’s business landscape features exciting developments in information technology, networking and collaboration that have led to new forms of organisation, production and distribution. Far from making management obsolete, however, these changes make good management more important than ever. The shift from management as direction to management as making and enforcing the rules is slowly entering the management literature and the business-school curriculum. That’s a paradigm shift worth embracing.

 This is a must-read article for anyone interested in the very hot topic of business management in the 21st century.

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Police Have No Duty to Protect You, Federal Court Affirms Yet Again

12/20/2018Ryan McMaken

Following last February's shooting at Marjory Stoneman Douglas High School in Parkland, Florida, some students claimed local government officials were at fault for failing to provide protection to students. The students filed suit, naming six defendants, including the Broward school district and the Broward Sheriff’s Office , as well as school deputy Scot Peterson and campus monitor Andrew Medina.

On Monday, though, a federal judge ruled that the government agencies " had no constitutional duty to protect students who were not in custody."

This latest decision adds to a growing body of case law establishing that government agencies — including police agencies — have no duty to provide protection to citizens in general:

“Neither the Constitution, nor state law, impose a general duty upon police officers or other governmental officials to protect individual persons from harm — even when they know the harm will occur,” said Darren L. Hutchinson, a professor and associate dean at the University of Florida School of Law. “Police can watch someone attack you, refuse to intervene and not violate the Constitution.”

The Supreme Court has repeatedly held that the government has only a duty to protect persons who are “in custody,” he pointed out.

Moreover, even though the state of Florida has compulsory schooling laws, the students themselves are not "in custody":

“Courts have rejected the argument that students are in custody of school officials while they are on campus,” Mr. Hutchinson said. “Custody is narrowly confined to situations where a person loses his or her freedom to move freely and seek assistance on their own — such as prisons, jails, or mental institutions.”

Hutchinson is right.

The US Supreme Court has made it clear that law enforcement agencies are not required to provide protection to the citizens who are forced to pay the police for their "services."

In the cases DeShaney vs. Winnebago and Town of Castle Rock vs. Gonzales, the supreme court has ruled that police agencies are not obligated to provide protection of citizens. In other words, police are well within their rights to pick and choose when to intervene to protect the lives and property of others — even when a threat is apparent.

In both of these court cases, clear and repeated threats were made against the safety of children — but government agencies chose to take no action.

A consideration of these facts does not necessarily lead us to the conclusion that law enforcement agencies are somehow on the hook for every violent act committed by private citizens.

This reality does belie the often-made claim, however, that police agencies deserve the tax money and obedience of local citizens because the agencies "keep us safe."

Nevertheless, we are told there is an agreement here — a "social contract" — between government agencies and the taxpayers and citizens.

And, by the very nature of being a contract, we are meant to believe this is a two-way street. The taxpayers are required to submit to a government monopoly on force, and to pay these agencies taxes.

In return, these government agents will provide services. In the case of police agencies, these services are summed up by the phrase "to protect and serve" — a motto that has in recent decades been adopted by numerous police agencies.

But what happens when those police agencies don't protect and serve? That is, what happens when one party in this alleged social contract doesn't keep up its end of the bargain.

The answer is: very little.

The taxpayers will still have to pay their taxes and submit to police agencies as lawful authority. If the agencies or individual agents are forced to pay as a result of lawsuits, it's the taxpayers who will pay for that too.

Oh sure, the senior leadership positions may change, but the enormous agency budgets will remain, the government agents themselves will continue to collect generous salaries and pensions, and no government will surrender its monopoly on the use of force.

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Piketty Urges Higher Taxes in Response to French Tax Revolt

Less than 10 years ago, many European nations suffered fiscal crises because of a combination of excessive spendingpunitive taxes, and crippling debt.

The crises have since abated, largely because of direct and indirect bailouts. But the underlying policy mistakes haven’t been fixed.

Indeed, the burden of government spending has increased in Europe and debt levels today are much higher than they were when the previous crisis began.

Unsurprisingly, these large fiscal burdens have resulted in anemic economic performance, which helps to explain why middle-class French taxpayers launched nationwide protests in response to a big increase in fuel taxes.

The French President, Emmanuel Macron, capitulated.

But some have suggested that Macron’s problem is that he wasn’t sufficiently bold.

I’m not joking. Led by Thomas Piketty, a few dozen European leftists have issued a Manifesto for bigger government.

We, European citizens, from different backgrounds and countries, are today launching this appeal for the in-depth transformation of the European institutions and policies. This Manifesto contains concrete proposals, in particular a project for a Democratization Treaty and a Budget Project… Our proposals are based on the creation of a Budget for democratization which would be debated and voted by a sovereign European Assembly. …This Budget, if the European Assembly so desires, will be financed by four major European taxes, the tangible markers of this European solidarity. These will apply to the profits of major firms, the top incomes (over 200,000 Euros per annum), the highest wealth owners (over 1 million Euros) and the carbon emissions (with a minimum price of 30 Euros per tonne).

Here are the taxes they propose as part of their plan to expand the burden of government spending.

Dec-13-18-Manifesto-Taxes.jpg

I’m surprised they didn’t include a tax on financial transactions.

And here’s a video (in French, but with English subtitles) explaining their scheme.

To put it mildly, this plan is absurd. It would impose another layer of governmentand another layer of tax on a continent that already is suffocating because the public sector is too large.

I’m not the only one with concerns.

In a column for Bloomberg, Leonid Bershidsky points out why he is underwhelmed by Piketty’s proposal.

The reforms proposed by Piketty and a group of intellectuals and politicians — notably Pablo Iglesias, leader of Spain’s leftist Podemos party — include the creation of a European Assembly. It would have the power to shape a common budget and impose common taxes…Piketty advocates four measures that would collect a total equivalent to 4 percent of Europe’s GDP… What is being proposed is essentially a return to the fiscal policies of the 1970s, which provoked Astrid Lindgren to write her satirical essay “Pomperipossa in Monismania.” In 1976, the children’s author was confronted with a tax bill of 102 percent of her income. …Hit them with new taxes and watch them flee to the U.S. and Asia. They won’t stay like patriotic Lindgren, whose essay helped to topple the Swedish government in 1976. And no amount of government funding…will repair the damage that envy-based taxation can wreak on economies already finding it hard to innovate.

Let’s not forget, by the way, the many thousands of French households who also have suffered 100 percent-plus tax rates.

But let’s not digress.

Writing for CapX, John Ashmore explains why Piketty’s plan will make Europe’s problems even worse.

…a group of politicians, academics and policy wonks spearheaded by…French economist Thomas Piketty…have put their names to a new Manifesto for the Democratisation of Europe. …For the most part, the manifesto reads like a souped up version of the kind of policies we’ve heard time and again from leftwing politicians. …The details of today’s ‘manifesto’ make Labour’s Marxist Shadow Chancellor John McDonnell look like a moderate centrist. Where Labour advocate putting corporation tax back up to 26 per cent, Piketty and co want it hiked to 37 per cent. And while we Brits spent plenty of the Coalition years discussing whether income tax should be 45p or 50p in the pound, the Manifesto goes all guns blazing for a 65 per cent top rate… these measures are projected to raise 800bn euros, equivalent to four times the current EU budget. …that would be a huge transfer of power, not from the rich from the poor, but from taxpayers to politicians.

A 65-percent top tax rate? At the risk of understatement, that’s a recipe for less entrepreneurship and less innovation.

Moreover, based on America’s experience during the Reagan years, it’s safe to say that actual tax receipts would fall far, far short of the projection.

But the higher spending would be real, as would the inevitable increase in red ink. And it’s worth noting that the Manifesto proposes to subsidize the debt of bankrupt welfare states. Very much akin to the eurobond scheme, which I pointed out would be like cosigning a loan for an unemployed alcoholic with a gambling addiction.

P.S. During my recent trip to London, I repeatedly warned people that a real Brexit was the only sensible choice because the European Union at some point will fully morph into a transfer union (i.e., a European budget financed by European taxes). It was nice of Piketty to issue a Manifesto that confirms my concerns. Simply stated, the United Kingdom will be much better off in the long run if it escapes.

P.P.S. Let’s not forget that Piketty’s core argument for class warfare has been thoroughly and repeatedly debunked. Indeed, only 3 percent of economists agree with his theory.

Originally published at International Liberty
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