Power & Market

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. 

Trump Tweets WashPo.png

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.) 


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

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. 


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.

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

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. 

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

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. 

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

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.


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

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. 


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. 

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

Poor Logic from Forbes and Paul Tudor Jones

01/03/2018Hunter Lewis

As the Austrian School has pointed out, the ultimate source of human poverty and failure lies in poor logic.

Here is an example from Forbes Magazine and a leading hedge fund investor who is also a major charitable donor genuinely devoted to helping humanity and the planet.

The editor of Forbes, Randall Lane, quotes Paul Tudor Jones, as follows

There is no bigger threat to our democracy than wealth disparity. It is a story normally reserved for monarchies, dictatorships and plutocracies….We got into this pickle because over the past 40 years the corporate focus on profits took on manic proportions relative to other stakeholders such as employees, communities and the planet.

There are several things wrong with this logic. In the first place, a focus on profits is not at odds with a focus on employees, customers, communities, or the planet. Profit, properly defined, is the net present value of all future profits, that is, what you should be able to realize by selling that profit stream today. To maximize profit, therefore, one must take a long term view and seek to provide exemplary service over many, many years to employees, customers, communities, and the planet. What Paul Tudor Jones is describing is not profit maximization, but rather short term profit taking, which will actually reduce the net present value of all future profits. As Henry Hazlitt pointed out in Economics in One Lesson, real capitalism focuses on the long run, not just the short run, and considers all consumers, not just some.

The problem of course is that we have never had the benefit of real capitalism. Thanks to the interventions of government into the economy, and especially into the pricing system, we get crony capitalism instead. This is bound to happen in a monarchy or dictatorship. But, contra Mr. Jones,  it is no less likely to happen in an American style democracy, as American history has shown. So long as government influences, manipulates, or controls prices, powerful special interests will strive to use the power of government to gain monopolies or other advantages. There are, however, certain periods in which government ( and in particular central bank) policy puts crony capitalism on steroids, with a resultant sharp increase in economic inequality,  and that is what we are seeing today.

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

Political "Tribalism" is the Consequence of Centralized Power

11/21/2017Tho Bishop

This clip from MSNBC's Morning Joe went through my Facebook feed earlier, with the show's panel pointing to the willingness of Alabama Republicans to vote for Roy Moore as an example of "extreme" tribalism that has taken over American politics. As Willie Geist put it:

If you're willing to protect the tribe at the cost of a 14-year old girl, you need to re-evaluate yourself.

Now, living in Alabama, I know many Moore defenders will dismiss the legitimacy of the original claims made against him. Putting aside the specific details of the case, it's hard to argue with Mr. Geist's point - if you are truly willing to sacrifice a 14-year old girl simply for the sake of your "tribe", then it may be worth evaluating your actions.Of course, the case of Roy Moore isn't a particularly unique one. Whenever allegations of inappropriate behavior are made against an individual that wields political power, the natural reaction to defend or attack an individual often coincides with how close their political views are to yours. 

In fact, one of my favorite articles that has emerged in light of recent allegations came out last week in the Washington Post after allegations emerged about Senator Al Franken. Written by a "feminist" who "studies rape culture", she is refreshingly honest by admitting that she would never want Democrats to take action against Franken simply because he's better than any Republican.

If I believed for one second that Franken is the only Democrat in the Senate who has done something like this, with or without photographic evidence, I would see that as the best and most appropriate option. But in the world we actually live in, I’m betting that there will be more. And more after that. And they won’t all come from states with Democratic governors and a deep bench of progressive replacements. Some will, if ousted, have their successors chosen by Republicans.

In other words, if we set this precedent in the interest of demonstrating our party’s solidarity with harassed and abused women, we’re only going to drain the swamp of people who, however flawed, still regularly vote to protect women’s rights and freedoms. 

While it may be fair to argue that this reaction is "tribalistic", it's also quite rational. 

After all, politics is simply war by other means - and you tend to prefer an SOB on your side over an enemy choir boy.

The solution, of course, is to change the battlefield. If we take away the power Washington has, and allow politics to be played out at the State and Local level, then America will no longer be a country in which we are required to force our political beliefs on everyone else. Instead, we would all have genuine options about the style of government we live under. 

As the scope of government America continues to grow, we will see political tribalism only grow.

Until that trend reverses itself, a politician's political affiliation will always matter more than his morals. 

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

Police Priorities: Prosecuting Locals for Rude Bumper Stickers

11/16/2017Ryan McMaken

A county sheriff in Texas has run afoul of the social media mob when he publicly announced on Facebook that he was seeking to press charges against a local resident known for using the F-word on a sign on his vehicle. 

Social media readers responded with the expected protests over freedom of speech when Sheriff Troy Nehls posted a photo of the offending truck and announced the local district attorney "has informed us she would accept Disorderly Conduct charges regarding it." 

Numerous other sites have focused on the First-Amendment implications of the situation. But let's focus here instead on the use of taxpayer-funded resources by a county employee:

In essence, the Sheriff is seeking to make an arrest over what amounts to a rude bumper sticker. 

By announcing that he has met with or called the local prosecutor, and may have charges filed, the sheriff is threatening the owner of the truck with state violence that may include arrest, fines, and perhaps even a short period of imprisonment. 

Given all the effort the Sheriff has gone to, a reasonable person might conclude that there is essentially no crime at all in Fort Bend County. 

However, in spite of the fact that the Sheriff acts like he has nothing better to do, it turns out that Fort Bend County has its share of crime. 

Indeed, according to the FBI's crime statistics, the Fort Bend County in 2016 reported a total of 758 violent crimes. This included 18 homicides, 83 rapes, 141 robberies, 516 aggravated assaults. Property crimes included 269 auto thefts. 

The population of the county is approximately 580,000, which means the homicide rate is around 3.0 per 100,000. That's not an especially high homicide rate by American standards, but it's not an especially low one, either, especially for a high-income suburban area like Fort Bend County. 

In other words, the county has its share of crime, but the Sheriff is more concerned with waging petty battles over bumper stickers with local residents, rather than focus on prosecuting violent criminals, or on recovering stolen property. 

In the past, here at mises.org, we've noted how with any organization — including law enforcement agencies — time spent on one activity necessarily reduces the resources spent on other activities. The often-used police claim that police "must enforce all the laws" has always been nonsense since there are limited resources available. 

Thus, there is a real opportunity cost to tracking down people with naughty words on bumper stickers, while there are also 500-odd aggravated assaults per year. 

This should surprise no-one of course, since the Sheriff's department is not subject to any market discipline and is guided more by how well it can lobby the county government for a bigger budget, and how well the Sheriff is at getting votes from the local population. This fracas over a bumper sticker, of course, is likely little more than a political ploy, given that the Sheriff apparently has ambitions for higher office. 

It may be that this publicity pays off well for the Sheriff. Local victims of crime, however, may fare less well. 

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