Power & Market

Professor Israel Kirzner Receives Distinguished Fellow Award

Congratulations to Israel Kirzner who received the Distinguished Fellow Award from the History of Economics Society at its 2018 annual meetings held in Chicago this past weekend. The Society confers the honor of “Distinguished Fellow” on “those who have contributed a lifetime of study to the history of economics.”  In receiving this honor, Professor Kirzner, one of the most illustrious representatives of the modern Austrian school,  joins a roster of eminent economists including Friedrich Hayek, George Stigler, Lionel Robbins, Don Patinkin, and Joseph Dorfman among others.  Kirzner’s book The Economic Point of View: An Essay in the History of Economic Thought, which was based on the Ph.D. dissertation he wrote under Ludwig von Mises, remains the best history of the transformation of economics from a study of the causes of material wealth to the science of human action. 

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Peter Klein Named Outstanding Professor by Baylor University

06/01/2018Mises Institute

Congratulations to Mises Senior Fellow Peter G. Klein for being recognized by Baylor University as an Outstanding Professor for 2017-2018. In particular, Dr. Klein was credited for his scholarship as the W. W. Caruth Chair and Professor of Entrepreneurship, and Senior Research Fellow with the Baugh Center for Entrepreneurship & Free Enterprise. 

His works the past year includes:

Stakeholders and Corporate Social Responsibility: An Ownership Perspective: Emerald Insight, February 2018 (coauthors: Nicolai Foss). 

"Business Law and the Austrian Theory of the Firm," , Cheltenham: Edward Elgar, December 2017, pp. 325-346 (coauthors: Peter J. Boettke, Todd J. Zywicki, Thomas A. Lambert). 

"Uncertainty Types and Transitions in the Entrepreneurial Process," Organization Science, Vol. 28, No. 5, (October 2017), pp. 840-856 (coauthors: Mark D Packard). 

"Entrepreneurial Discovery or Creation? In Search of the Middle Ground," Academy of Management Review, Vol. 42, No. 4, (October 2017), pp. 735-737 (coauthors: Nicolai J Foss). 

"The Effects of Academic Incubators on University Innovation," Strategic Entrepreneurship Journal, Vol. 11, No. 2, (June 2017), pp. 145-170 (coauthors: Christos Kolympiris). 

"Entrepreneurial Traits, Formal Institutions, and the Motivation to Engage in Entrepreneurial Action," (May 2017) (coauthors: Boris Nikolaev, Christopher Boudreaux). 

"Organizational Governance Adaptation: Who Is In, Who Is Out, and Who Gets What," Academy of Management Review, (2017) (coauthors: Joseph T Mahoney, Anita M McGahan, Christos Pitelis). 

"Uncovering the Hidden Transaction Costs of Market Power: A Property Rights Approach to Strategic Positioning," Managerial and Decision Economics, (2017) (coauthors: Kirsten Foss, Nicolai Foss). 

"My Contributions to Entrepreneurship Theory," , London: Routledge, 2017. 

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Pope Francis Endorses Slower Growth, More Poverty

I almost feel guilty when I criticize the garbled economic thoughts of Pope Francis. After all, he was influenced by Peronist ideology as a youngster, so he was probably a lost cause from the beginning.

Moreover, Walter Williams and Thomas Sowell have already dissected his irrational ramblings on economics and explained that free markets are better for the poor. Especially when compared to government dependency.

But since Pope Francis just attacked tax havens, and I consider myself the world’s foremost defender of these low-tax jurisdictions, I can’t resist adding my two cents. Here’s what the Wall Street Journal just reported about the Pope’s ideological opposition to market-friendly tax systems.

The Vatican denounced the use of offshore tax havens… The document, which was released jointly by the Vatican’s offices for Catholic doctrine and social justice, echoed past warnings by Pope Francis over the dangers of unbridled capitalism. …The teaching document, which was personally approved by the pope, suggested that greater regulation of the world’s financial markets was necessary to contain “predatory and speculative” practices and economic inequality.

He even embraced global regulation, not understanding that this increases systemic risk.

The supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries,” the Vatican said. “The current globalization of the financial system requires a stable, clear and effective coordination among various national regulatory authorities.

And he said that governments should have more money to spend.

A section of the document was dedicated to criticizing offshore tax havens, which it said contribute to the “creation of economic systems founded on inequality,” by depriving nations of legitimate revenue.

Wow, it’s like the Pope is applying for a job at the IMF or OECD. Or even with the scam charity Oxfam.

In any event, he’s definitely wrong on how to generate more prosperity. Maybe he should watch this video.

Or read Marian Tupy.

Or see what Nobel Prize winners have to say.

P.S. And if the all that doesn’t work, methinks Pope Francis should have a conversation with Libertarian Jesus. He could start herehere, and here.

Originally published at Dan Mitchell's blog International Liberty
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Public Policy as Revenge: Patrick Newman on the Tom Woods Show

03/29/2018Tho Bishop

We've known for a while now that Donald Trump is not a fan of Jeff Bezos or Amazon. Tweets from the President confirmed prior reports that he takes particular exception to the rates the US Post Office charges Amazon for their delivery services, as well as voicing your standard protectionist concerns about how delivery services threaten brick and mortar businesses. 

Of course some speculate that Trump's particular fixation with Amazon may have something to do with another branch of the Bezopus - the Washington Post

The Post has gained the reputation as one of the Trump Administration's most frequent critics, and added “Democracy Dies in Darkness" underneath its masthead in response to the President's attacks on the media. New York Magazine has helpfully compiled a list of some of Trump's attacks the paper, including a few barbed tweets. 

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While the idea of public policy being waged as a form of revenge is rightfully terrifying, it's certainly not new.

At last weekend's Austrian Economics Research Conference, Dr. Patrick Newman presented a paper on the origins of the Sherman Antitrust Act contending that the origins and lobbying for the legislation in part stemmed from a personal grudge between Ohio Sen John Sherman and Michigan Governor Russell Alger. Sherman believed Alger was to blame for him failing to become the Republican nominee in 1888, and was determined to make sure Alger paid the price  for it. The paper was inspired by Newman's work as the editor of the recently published Rothbard book on the Progressive Era.

He recently joined the Tom Woods Show to talk about the paper. It's a fascinating conversation, and a worthwhile anecdote the next time a friend complains about how bad modern politics is these days (in reality, it was never really good to begin with.) 

 

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Powell Raises Rates, Is Wrong About the Fed Not Subsidizing Wall Street

03/21/2018Tho Bishop

The Federal Reserve continues to slowly increase the federal funds rate from 1.5 to 1.75 percent today, the first such decision of the Jerome  Powell era. More interesting is that, when asked during his press conference, Chairman Powell dismissed the idea of the Fed's Interest on Excess Reserves (IOER) policy as a subsidy to Wall Street. 

IOER is the Fed's payments on interest held by large banks at the Fed beyond what they are required to store. Though the policy is a new one - coming into practice in 2008 - it has quickly become, in the words of former Chairwoman Yellen, the key policy tool of the Fed. The idea is that the Fed can set the lower bound for interest rates with the tool (as a risk free way to park reserves), while still giving the Fed the flexibility to expand its balance sheets. In doing so, as George Selgin has done a great job writing about, the Fed has transitioned from a traditional "corridor"-style operating system (focused on overnight bank lending) to a "floor" system. 

Putting aside for this post questions about the policy's effectiveness and legality, this policy is one of the most vivid examples of how the Federal Reserve benefits Wall Street at the expense of tax payers. After all, the money the Fed uses to make these payments on interest comes from the profits of the Fed itself. As such, Wall Street banks have now been given a risk-free avenue to get return on their holdings. Clearly the banks see this as a better return than they would get lending on the market, or else we wouldn't see excess reserves continue to stand at over $2 trillion. 

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As this policy comes under increased scrutiny on Capitol Hill, expect to see the topic continue to come up in the future. 

Other highlights from today announcement include the Fed acknowledging that economic growth has slowed so far in 2018, with the language used to describe economic and job browth being changed from "solid" to "moderate." Still, the FOMC increased their projections for economic grwoth - from 2.5% to 2.7% - though Powell noted in his press conference that there is some concern over the impact of President Trump's tariffs going forward.

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Pompeo and Haspel are Symptoms of a Deeper Problem

03/19/2018Ron Paul

President Trump’s recent cabinet shake-up looks to be a real boost to hard-line militarism and neo-conservatism. If his nominees to head the State Department and CIA are confirmed, we may well have moved closer to war.

Before being chosen by Trump to head up the CIA, Secretary of State nominee Mike Pompeo was one of the most pro-war Members of Congress. He has been militantly hostile toward Iran, and many times has erroneously claimed that Iran is the world’s number one state sponsor of terror. The truth is, Iran neither attacks nor threatens the United States.

At a time when President Trump appears set to make history by meeting North Korean leader Kim Jong-un face-to-face, Pompeo remains dedicated to a “regime change” policy that leads to war, not diplomacy and peace. He blames Iran – rather than the 2003 US invasion – for the ongoing disaster in Iraq. He enthusiastically embraced the Bush policy of “enhanced interrogation,” which the rest of us call “torture.”

Speaking of torture, even if some of the details of Trump’s CIA nominee Gina Haspel’s involvement in the torture of Abu Zubaydah are disputed, the mere fact that she helped develop an interrogation regimen that our own government admitted was torture, that she oversaw an infamous “black site” where torture took place, and that she covered up the evidence of her crimes should automatically disqualify her for further government service.

In a society that actually valued the rule of law, Haspel may be facing time in a much different kind of federal facility than CIA headquarters.

While it may be disappointing to see people like Mike Pompeo as Secretary of State and Gina Haspel as the head of the CIA, it shouldn’t be all that surprising. The few areas where President Trump’s actions are consistent with candidate Trump’s promises are ripping up the nuclear deal with Iran and embracing the torture policies of President George W. Bush. Candidate Trump in late 2015 promised to bring back waterboarding “and a whole lot worse” if he became president. It seems that is his intention with the elevation of Pompeo and Haspel to the most senior positions in his Administration.

We should be concerned, of course, but the real problem is not really Mike Pompeo or Gina Haspel. It is partly true that “personnel is policy,” but it’s more than just that. It matters less who fills the position of Secretary of State or CIA director when the real issue is that both federal agencies are routinely engaged in activities that are both unconstitutional and anti-American. It is the current Executive Branch over-reach that threatens our republic more than the individuals who fill positions in that Executive Branch. As long as Congress refuses to exercise its Constitutional authority and oversight obligations – especially in matters of war and peace – we will continue our slide toward authoritarianism, where the president becomes a kind of king who takes us to war whenever he wishes.

I am heartened to see some Senators – including Sen. Rand Paul – pledging to oppose President Trump’s nominees for State and CIA. Let’s hope many more join him – and let’s hope the rest of the Congress wakes up to its role as first among equals in our political system!

Reprinted with permission. 

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Parents to Sue Broward Sheriff's Office for Failing to Provide Protection

03/07/2018Ryan McMaken

As we've already discussed in detail, here and here, police agencies are not under any general legal obligation to protect the taxpaying public from criminal behavior. The motto "to protect and serve" is an advertising slogan. 

Moreover, police agencies are also protected by immunity laws from lawsuits in regards to police abuse or lack of action. 

However, in the case of last month's shooting at a school in Parkland, Florida, a Sheriff's deputy had specifically been assigned to provide security services at the school. This, apparently open up the Sheriff's office to legal action. Reuters reports on how at least one student who survives the massacre has announced a plan to sue to partially offset medical costs: 

Law enforcement officers are generally immune to legal claims over inaction, as courts have held they need to be able to make decisions without fear of liability.

However, the Sheriff’s Office and Deputy Sheriff Scot Peterson could fall under a “special relationship” exception because Peterson was specifically assigned to protect Marjory Stoneman Douglas High School in Parkland, Florida, said Timothy Lytton, a law professor at Georgia State University who has written a book on gun litigation.

“The children and teachers justifiably relied on him and his unique level of knowledge to protect them,” Lytton said.

The deputy’s failure to enter the school during the shooting has added to criticism of law enforcement officials over warnings that accused shooter Nikolas Cruz posed a threat.

This may be the only legal option for the students and parents seeking legal reparations from either the school of law enforcement agencies. 

Government schools are generally immune from lawsuits claiming insufficient security, as well. 

Overall, though, there is little reason to expect schools to start taking security seriously until they are held legally accountable for providing meaningful security on their premises. 

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Powell's First Congressional Hearing was Dull — Just as He Wanted it to Be

02/27/2018Tho Bishop

Today Jay Powell had his first appearance before Congress as Chairman of the Federal Reserve, confirming that his leadership at the Fed will look very similar to Janet Yellen. Though his testimony did note that 2018 has witnessed some volatility in the stock market and other assets, he maintained the same positive outlook of his predecessor. Perhaps alluding to the impact of Republican tax cuts, Powell went as far to say that he was more optimistic about the economies future than he was in December - leading markets to believe that a fourth rate hike may be possible this year. 

Powell faced several questions from Republicans regarding the Fed's payment of interest rates on excess reserves at the Fed. This tool, which Congress gave the Fed in 2006 and then sped up its implementation in 2008, has increasingly come under attack from Chairman Jeb Hensarling. Voicing many of the criticisms made by George Selgin and others, Hensarling grilled Powell on whether the Fed's current use of IOER has far exceeded the original aims of Congress - a charge Powell denied. While it's encouraging to seen increased scrutiny paid to what, in practice, is a blatant subsidy to Wall Street - potentially reversing this policy tool brings its own risks. After all, it is the fact that over $2 trillion remains parked within the Fed that has helped limit the inflationary consequences of qualitative easing. Letting that money leave the Fed's vaults and loaned out in the fractional reserve system could lead to significant inflation. This is simply one of the many challenges the Fed faces in the near future. 

Meanwhile, the Democrat's questioning of Powell offered little in terms of substance.The lack of diversity - superficial, not ideological - within the Fed has become the go-to talking point during these sort of hearings. Other questions were aimed to get Powell to criticize various policies of the Trump administration, with Powell avoiding falling into any such traps.

 

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Personal Saving Rate Falls to 10-Year Low in November

01/16/2018Ryan McMaken

In November 2017, the personal saving rate in the United States fell to a ten-year low, dropping to 2.9 percent. The last time the saving rate was lower than 2.9 percent was during November of 2007. 

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The Wall Street Journal reported last month that Americans are spending more and saving less: 

Americans spent more and saved less in November, a sign that low unemployment, robust consumer confidence, the prospect of tax cuts and buoyant financial markets are underpinning a strong holiday shopping season.

Americans are saving at the slowest pace in a decade, likely in anticipation of continued job and wealth gains as stock indexes barreled to new records last month and the unemployment rate stood at a 17-year low.

If we look at saving rates in the wake of the financial crisis, we find saving rates quickly moved upward as consumers were unsure of the future and cut back on spending. Now, with employment growth solid, households are assuming that present conditions will continue, so are saving less and less. 

Last week, we looked at how median net worth in the United States, as of 2014, was still below where it had been in 2001. It remained significantly below where it had been in 2007. 

One of the reasons given (in an NBER report) for the stubbornly low net worth among Americans was the fact that Americans were neglecting to save money. In many cases, they were paying down debt, but we are also witnessing a troubling trend in which Americans are selling assets to pay off debts. But, as the report noted, "the reduction in assets was greater than the reduction of debt."

Debt continues to be a factor: 

The sharp fall in median net worth and the rise in overall wealth inequality over these years are traceable primarily to the high leverage of middle class families and the high share of homes in their portfolio. The racial and ethnic disparity in wealth also widened considerably. Households under age 45 saw their relative and absolute wealth declined sharply. Rather remarkably, there was virtually no change in median wealth from 2010 to 2013 despite the rebound in asset prices. The proximate cause was the high dissavings of the middle class, though their debt continued to fall. 

As a final note, we might also consider saving in a larger historical context. Here we see personal saving as a percentage of disposable income. 

In this case, at 3.8 percent in 2017, it has not returned to its pre-Great Recession levels, but of course remains well below where it was during the 1950s and 1960s, when it often reached above ten percent. 

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