Power & Market

Rothbard and Salerno Quoted on Modern Monetary Theory

Brian Maher of the Daily Reckoning quotes Murray Rothbard and me in his incisive critique of Modern Monetary Theory (MMT), which has lately been embraced by proponents of the "Green New Deal."

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Ryan McMaken on National Parks on the Lions of Liberty Podcast

01/16/2019Mises Institute

On the Lions of Liberty podcast, Marc Clair and Ryan McMaken discuss the government shutdown and the need to decentralize the national parks:

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Rough Times Ahead, But Liberty Can Still Win

01/02/2019Ron Paul

While Congress and the president fight over funding a border wall, they continue to ignore the coming economic tsunami caused by the approximately 22 trillion dollars (and rapidly increasing) federal debt. President Trump may not be troubled by the debt’s effect on the economy because he believes he will be out of office before it becomes a major problem. However, the crisis may come sooner than he, or most people in DC, expects.

The constituency for limited government, while growing, is still far outnumbered by those wanting government to provide economic and personal security. From lower-income Americans who rely on food stamps, public housing, and other government programs, to middle-class Americans who live in homes they could not afford without assistance from federal agencies like Fannies Mae and Freddie Mac, to college students reliant on government-subsidized student loans, to senior citizens reliant on Social Security and Medicare, to billionaire CEOs whose companies rely on bailouts, subsidies, laws and regulations written to benefit politically-powerful businesses, and government contracts, most Americans are reliant on at least one federal program. Many programs are designed to force individuals to accept government aid. For example, it is almost impossible for a senior citizen to obtain health insurance outside of Medicare.

The welfare state is fueled by the Federal Reserve’s easy money policies, which are also responsible for the boom-and-bust cycle that plagues our economy. The Federal Reserve’s policies do not just distort our economy, they also distort our values, as the Fed’s dollar depreciation causes individuals to forgo savings and hard work in favor of immediate gratification. This has helped create an explosion of business and individual debt. There has been a proliferation of bubbles, including in credit card debt, auto loans, and student loans. There is even a new housing bubble.

An economy built on fiat currency and public and private debt is unsustainable. Eventually the bubbles will burst. The most likely outcome will be the rejection of the dollar’s world reserve currency status due to government debt and the Federal Reserve’s monetization of debt. When the bubbles pop, the result will be an economic crisis that will likely dwarf the Great Depression.

The fall of the dollar and the accompanying economic downturn will make it impossible for the government to continue running up huge debts to finance a massive welfare-warfare state. Thus, Congress will be forced to raise taxes and cut benefits. Cowardly politicians will likely outsource the job of raising taxes and cutting benefits to the Federal Reserve. This will cause a dramatic increase in the most insidious of taxes: the inflation tax.

As the Federal Reserve erodes the value of the dollar, thus reducing the value of both earned paychecks and government-provided welfare benefits, a large number of Americans who believe they are entitled to economic security will react by engaging in acts of violence. Politicians will use this violence to further crack down on civil liberties. The resulting economic and civil unrest will further the growth of authoritarian political movements.

Fortunately, the liberty movement continues to grow. This movement counters the authoritarian lies with the truths of Austrian economics and the non-aggression principle. While the years ahead may be tough, if those of us who know the truth work hard to educate others, the cause of liberty can prevail.

Reprinted with permission.

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Rising Inequality and Slowing Productivity Have a Common Driver: Government Intervention

12/20/2018Mihai Macovei

A growing chorus of alarmist voices decries the rising economic inequality in the Western world and especially in the United States.1 Surprisingly enough, the same mainstream analysts complain about the anemic growth of labor productivity without seeing the correct link between the two.

Data shows a strong correlation between labor productivity and economic inequality (the two charts below). From the end of Second World War until the mid-1970s, labour productivity grew at a robust rate of almost 3% per annum while income inequality declined. Afterwards both trends reversed - labor productivity slowed to below 2% growth p.a. on average and almost stagnated since the Great Recession while both wealth and income inequality expanded steadily.2

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What common factor could explain the two divergent trends that the mainstream analysts seem to overlook? In the 1940s Mises3 was impressed by the ”miraculous” rise in the standards of living of American wage earners which had been going on for more than two centuries. For him the answer was straightforward: capital accumulation is the driving force behind both labour productivity and standards of living convergence.

Building on Mises' work, Rothbard4 explained in detail what capital accumulation requires: (i) new capital investment that lengthens the structure of production and (ii) technological progress that overcomes the diminishing returns accompanying the increase in the supply of capital goods. However, Mises also warned that a depletion of the capital stock would hamper capital accumulation and labor productivity.5 Unfortunately, mainstream analysts and the United States seem to have forgotten this valuable lesson.

In terms of technological progress, the U.S. has maintained its world leadership during past decades. It ranks second in the world to Switzerland in terms of both innovation and business sophistication6, spends more for Research &Innovation than the OECD or EU on average relative to GDP7 and makes up for the majority of the top 25 universities in the world.8 Moreover it has issued the same amount of patents over the last three decades compared with the previous 150 years.9

In terms of capital stock, the picture is completely different. According to estimates of the Bureau of Economic Analysis (BEA),10 the stock of private non-residential assets per worker has increased in real terms at about 1% p.a. from 1947 to 2009 and stagnated since the Great Recession (left chart below). However, BEA's alleged sustained pace of capital growth seems hard to reconcile with the falling private investment and savings since the mid-1970s (right chart below).

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In addition, the BEA methodology presents some serious shortcomings. Except for cars, BEA uses the “perpetual inventory method” to estimate fixed assets.11 According to it, the value of the capital stock is indirectly estimated as the sum of past investment flows minus the estimated depreciation. It means that all past investments are considered sound by default which is certainly not the case nowadays when recurrent boom and busts cause significant volumes of 12malinvestments. Other question marks relates to the accurate estimation of depreciation rates in the face of rapid technological progress and the use of GDP deflators while their accuracy is unreliable especially as regards real estate investment.

All these considerations have led not only us, but also the Federal Reserve Board (FRB) to suspect that BEA's estimates of the U.S. capital stock are overvalued.13 It is intriguing that the FRB adjusts the BEA estimates downwards, especially as regards real estate assets - "structures" in BEA's jargon, when it uses them as input for the calculation of the capital stock in manufacturing. As a result, there is a substantial difference between BEA and FRB estimates of the evolution of the volume of manufacturing capital stock from 1952 to 2016, in particular for the real estate component (left chart below).14 Therefore, we tried to recalculate the BEA estimate of the total stock of private non-residential capital per employee by extrapolating the difference between the two manufacturing indexes coming from BEA and FRB (right chart below).

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The new results suggest that the real stock of capital per worker has grown in a clear and sustained manner only until the end-1970s and fell afterwards until the trough of the Great Recession. The recalculated capital stock is both more consistent with the observed declines in investment and productivity since the mid-1970s and confirms Mises' prediction that wrong policies would lead to capital consumption.

For the United States, the failed economic policy is the exponential growth of government intervention in the economy in the 20th century, which stifled entrepreneurship and capital accumulation. This is obvious in the rise of both government spending that redistributes away economic resources from their originators (left chart below) and the amount of regulatory burden (right chart below). Another key factor taking a toll on capital endowment is inflation, which gained traction since the de-facto abolishment of the gold standard in 1971.

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Most importantly, inflationary policies trigger boom-bust cycles via the artificial lowering of interest rates below their free market level. In a recent article on the business cycle,15 Salerno emphasizes that, "overconsumption" and "malinvestment" are the two salient marks of the boom and not "overinvestment" as wrongly understood by some mainstream critics. It is no surprise that the capital stock per worker dropped during the business cycles that occurred regularly since the 1970s and culminated in the Great Recession. The illusion of the boom fuels not only capital consumption but also the polarization of wealth and incomes in the society. The fiduciary credit expansion fuels an increase in asset prices, most commonly on stock exchanges and in real estate (charts below).

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Although starting from a limited number of transactions, all owners calculate their net worth with the newly inflated asset prices, boosting the value of household assets in excess of liabilities. As a result, the rich appear to get even richer in an economy on steroids. This explains why both the U.S. national wealth has grown much faster than national income since the end-1970s (left chart below) and the number of wealthy people increased significantly (right chart below).16

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The rising inequality since the 1970s has been fueled by both the decline in labor productivity and the monetary expansion inflating asset prices. Both are perverse effects of government interventionist policies, which led to a gradual erosion of the U.S. capital stock per employee. This is the correct linkage between inequality and productivity as explained by Mises and other Austrian School economists.

People have different skills and preferences, so the free market does not lead to a complete equalization of incomes and wealth. Nevertheless, it does ensure the proper allocation of capital to increase labor productivity and satisfy the most urgent needs of consumers. As a result, the gap between the well off and the poor is not only gradually diminishing, but also gets less significant in terms of consumption. Eventually the disadvantage of wealth inequality becomes mostly a psychological one.17 As long as the capitalist consumes only a fraction of his wealth and invests the rest into productive businesses, the real beneficiary of the increase in labor productivity is the poorer part of the society.

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Record European Skyscraper

11/20/2018Mark Thornton

A new record breaking skyscraper for Europe has been completed as the tallest skyscraper in Europe. Under construction for six years, the 87 story building (Lakhta Center) in St. Petersburg will become the headquarters of Russia's natural gas giant and its oil subsidiary, Gazprom. The building will not be finished on the interior and open to the public until next year.

This sets the stage for the Skyscraper Curse.

The STOXX European 600 Index, which consists of a variety of stocks from European stock markets is down 9% since September 27, about when the record was broken. HT: RB

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Reuters Poll Shows Hispanics Support Secession More than the General Population

10/30/2018Ryan McMaken

Released to not much fanfare, Reuters has posted some very interesting interactive poll data on surveys showing the level of support for "the idea of your state peacefully withdrawing from the USA and the federal government."

Nationwide, overall opinion is heavily against with, among all people polled, 58 percent in opposition, and only 22 percent supporting. (Back in 2014, a poll showed 23.9 percent of Americans supporting secession.)

Results vary by region, however, with more than 60 percent opposing secession in the Southeast, Rocky Mountain, Great Plains, Great Lakes, and New England regions.

In the Far West (which includes California) and in the Southwest only 51 percent and 49 percent oppose secession, respectively.

The Southwest's numbers are bolstered significantly by the presence of Hispanics who apparently are much more sympathetic toward secession than the "white" (presumably "non-Hispanic white," since half of Hispanics consider themselves to be white) population.

Nationwide, 36 percent of Hispanics support secession while 42 percent oppose.

Looking just at Hispanics in the southwestern part of the country that have 20% or more Hispanic population (which therefore includes California, Arizona, New Mexico, Texas, Colorado, and Nevada, support is 35 percent and opposition is 42 percent.

But, in spite of the "Calexit" effort, it appears California Hispanics are more inclined to oppose secession than Hispanics in other states of the region.

If we exclude California (and thus measure Arizona, New Mexico, Texas, Colorado, and Nevada), 35 percent of Hispanics support secession, while only 38 percent oppose.

Of course, the data doesn't tell us the reason that Hispanics support secession more in this data. It's likely that the reasons vary.

Pew data has shown that among Hispanics polled, nearly as many self-identify as "libertarian" (11 percent) than is the case for Anglos (12 percent). Assuming that someone who self-identifies as libertarian is more likely to support decentralization and secession (something that isn't always true) then there's nothing shocking about these numbers.

Moreover, support for secession is higher among Hispanics regardless of whom they supported in 2016. Among those Hispanics who supported Clinton in 2016, support for secession is 33 percent in support of secession and 47 percent in opposition. Among everyone else, 22 percent support, and 63 percent oppose.

Nor is that all being driven by California Hispanics. Excluding California from these numbers, support for secession among Clinton-supporting Hispanics is even higher: 36 percent support, and 45 percent oppose.

And, among Trump-supporting Hispanics (which was 28 percent of voting Hispanics in 2016), secession almost wins a plurality: 45 percent support, and 47 percent oppose. But among non-Hispanic Trump supporters, support for secession is abysmal: only 19 percent support and 69 percent oppose.

It's hard to see any unifying theory here, although I'm old enough to remember the days when panicked Anglos spread the theory that most Mexican-Americans were plotting to secede and "rejoin Mexico" or found the new country of "Aztlan" which would be a ethno-state of Hispanics. (The fact that Mexican-Americans have an extremely varied racial make-up, however, is usually ignored.)

Given that all my maternal relatives are Mexican-Americans, though, I always found this little theory to be laughably tone-deaf. For the most part, the only Mexican-Americans who have interest in some sort of Mexican ethno-state or Mexican re-unification are University ideologues in Latino Studies departments. Among man-on-the-street Mexican-Americans, the level of support for a plot to "rejoin" Mexico is likely a tiny minority.

On the other hand, it is entirely possible that More Mexican-Americans (most of which are native-born, of course) simply have a more international view of things, and haven't quite imbibed the mythology of the US as "indispensable nation" (whether viewed through a left- or right-wing prism) to the same degree that the Anglo population has. It could be the idea of a future in an independent country or something independent from Washington, DC doesn't fill Mexican-Americans with the same terror it apparently fills Americans in the Southeast or New England.

In any case, I've just focused here on the Hispanic numbers in this Reuters survey because it interests me. Check it out, as you can also filter the results by a number of other variables, including religion, income, and more.

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Ron Paul on How Austrian Economics Inspired his Political Career

08/20/2018Ron Paul

Today is Ron Paul's 83rd Birthday! Dr. Paul is not only a Distinguished Counselor for the Mises Institute, but a founding member and perhaps the most influential advocate for Austrian economics the world has ever seen. 

In 1984, Dr. Paul wrote about the role Austrian economics and Ludwig von Mises played in his deciding to pursue politics, and how it equipped him with the "intellectual ammunition" he needed to stand up to the pressures of Washington, D.C.: 

[U]nder the predominance of interventionist ideas, a political career is open only to men who identify themselves with the interests of a pressure group.... Service to the short-run interests of a pressure group is not conducive to the development of those qualities which make a great statesman. Statesmanship is invariably long-run policy; pressure groups do not bother about the long-run. - Ludwig von Mises, Human Action

I decided to run for Congress because of the disaster of wage and price controls imposed by the Nixon administration in 1971. When the stock market responded euphorically to the imposition of these controls and the closing of the gold window, and the U.S. Chamber of Commerce and many other big business groups gave enthusiastic support, I decided that someone in politics had to condemn the controls, and offer the alternative that could explain the past and give hope for the future: the Austrian economists’ defense of the free market. At the time I was convinced, like Ludwig von Mises, that no one could succeed in politics without serving the special interests of some politically powerful pressure group.

Although I was eventually elected, in terms of a conventional political career with real Washington impact, he was absolutely right. I have not developed legislative influence with the leadership of the Congress or the administration. Monies are deliberately deleted from routine water works bills for my district because I do not condone the system, nor vote for any of the appropriations.

My influence, such as it is, comes only by educating others about the rightness of the free market. The majority of the voters in my district have approved, as have those familiar with free-market economics. And voters in other districts, encouraged by my speaking out for freedom and sound money, influence their representatives in the direction of a free market. My influence comes through education, not the usual techniques of a politician. But the more usual politicians in Congress will hardly solve our problems. Americans need a better understanding of Austrian economics. Only then will politicians become more statesmanlike.

My introduction to Austrian economics came when I was studying medicine at Duke University and came across a copy of Hayek’s The Road to Serfdom.

After devouring this, I was determined to read whatever I could find on what I thought was this new school of economic thought—especially the work of Mises. Although the works were magnificent, and clarified many issues for me, it was more of a revelation to find intellectuals who could confirm what I “already knew”—that the free market is superior to a centrally planned economy. I did not know how a free market accomplished its work, and so the study of economics showed me this, and how to build a case for it. But, like many people, I did not need to be convinced of the merits of individual freedom—for me that came naturally.

For as long as I can remember, I wanted to be free from government coercion in any form. All my natural instincts toward freedom were inevitably challenged by the established school system, the media, and the government. These systems tried to cast doubt on my conviction that only an unhampered market is consonant with individual liberty. Although reassured that intellectual giants like Mises agreed with a laissez-faire system, I was frustrated by knowing what was right, while watching a disaster developing for our economy. The better I came to understand how the market worked, the more I saw the need to implement these ideas through political action. Political action aimed at change can, of course, take various forms. In 1776, in America, it was a war for independence from British oppression. In 1917, in Russia, violence was used to strengthen oppression.

Fortunately, it is possible to accomplish the proper sort of change through education, persuasion, and the democratic process. Our rights of free speech, assembly, religion, petition, and privacy remain essentially intact. Before our rights are lost, we must work to change the policies of 70 years of government interventionism. And the longer we wait the harder it will be.

Because of my interest in individual liberty and the free market, I became closely associated over the years with friends and students of Mises, those who knew the greatness of Mises from a long-term personal friendship with him. My contact, however, was always through his writings, except on one occasion. In 1971, during a busy day in my medical office, I took a long lunch to drive 60 miles to the University of Houston to hear one of the last formal lectures Mises gave—this one on socialism. Although 90 at the time, he was most impressive, and his presentation inspired me to more study of Austrian economics. My subsequent meetings and friendship with the late Leonard Read and his Foundation for Economic Education also inspired me to work harder for a society unhampered by government intrusion into our personal and economic lives. My knowledge has been encouraged and bolstered through the extraordinary work of the Mises Institute, with its many publications and conferences, and its inspiring work among students choosing academic careers.

My friendships with two important students of Mises, Hans Sennholz and Murray Rothbard, were especially helpful in getting firsthand explanations of how the market functions. They helped me to refine my answers to the continual barrage of statist legislation that dominates the U.S. Congress. Their personal assistance was invaluable to me in my educational and political endeavors.

Such friendships are valuable, but the reassurance that sound thinkers were on my side was inspirational. It gave me the confidence I needed to intellectually defend my political and economic positions on the campaign trail and on the House floor....

Austrian economics has provided me with the intellectual ammunition to support my natural tendency to say “no” to all forms of government intervention. Mises provides an inspiration to stick to principle and to argue quietly and confidently in favor of the superiority of a decentralized, consumer-oriented market, in contrast to a bureaucratic centrally planned economy.

Mises is clear about the responsibility we all have in establishing a free society. He concludes Socialism with this advice: Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.

And in Human Action he states:

There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon “experts” and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people’s domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake.

I’m convinced, as was Mises, that the solutions to the crisis we face must be positive (which is just one reason I am so pleased by the establishment of the Ludwig von Mises Institute). He stated in The Anti-Capitalistic Mentality that the “anti-movement” has “no chance whatever to succeed” and that “what alone can prevent the civilized nations of Western Europe, America and Australia from being enslaved by the barbarism of Moscow is open and unrestricted support of laissez-faire capitalism.”

Without Austrian economics, I would not have had my political career. The strongest motivating force in my political activities is to live free since I was born free. Liberty is my first goal. The free market is the only result that can be expected from a free society. I do not accept individual freedom because the market is efficient. Even if the free market were less “efficient” than central planning, I would still prefer my personal freedom to coercion. Fortunately, I don’t need to make a choice. Austrian economics upholds the market’s efficiency, and that reinforces my overwhelming desire and right to be free. If no adequate intellectual explanation existed as to the efficiency of the free market, no political activism of any sort would be possible for any pro-freedom person. Our position would only be a theoretical pipe dream.

I see no conflict however between a utilitarian defense of the market economy and the argument for a free market as a consequence of a moral commitment to natural God-given rights, for there is no conflict.

The economist’s approval of the market for purely utilitarian reasons actually becomes a more “objective” analysis if not approached from a natural rights standpoint. But when combined with a natural-rights philosophy, it is even more powerful. No choice must be made. The utilitarian argument does not exclude the belief that life and liberty originates with the Creator. When they are added together they become doubly important.

When one argues for the free market on utilitarian grounds, one starts with particular actions by the individual. In starting with a natural rights argument the “a priori” becomes “the gift of life and liberty” as natural or God-given.

The utilitarians may be neutral or antagonistic regarding the origins of life and liberty, but this in no way weakens their explanation of the technical advantages of a free economic system. However, those who accept a natural rights philosophy have no choice whatsoever but to accept laissez-faire capitalism.

Mises’s utilitarian defense of the market opens political careers for those who believe in liberty, courage, and even dares one who truly believes in the system to present it in political terms.

Mises in Human Action says:

The flowering of human society depends on two factors: the intellectual power of outstanding men to conceive sound social and economic theories, and the ability of these or other men to make these ideologies palatable to the majority.

Ludwig von Mises certainly provided sound economic and social theories. I hope that my modest success in politics may encourage others to try it, and help prove Mises “wrong,” showing that a political career is open to men and women who do not identify themselves with the interests of a pressure group, but with the liberty of all.
Excerpted from Mises and Austrian Economics: A Personal View
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Republican Congressman Charged with Insider Trading, Which Shouldn't Be a Crime

08/08/2018Tho Bishop

New York Republican Congressman Chris Collins was indicted today on a variety of charges stemming from an investigation of insider trading. Prosecutors allege that he, along with son and soon to be son-in-law, is guilty of trading on non-public information concerning the results of a drug trial. Collins traded stock in Innate Immunotherapeutics Limited, a company where Collins is a board member, in order to avoid over $768,000 in losses. 

While there is undoubtedly numerous actions Collins has taken as a Congressman that warrants him being criticized by society, insider trading is not one of them. This news story is a good opportunity to revisit an article by Bob Murphy on the subject, explaining how insider trading actually has social value and why laws cracking down on the practice open the door to the heavy hand of government going after all sorts of profitable activity.

Excerpted from Is Insider Trading Really a Crime? 

We Want People Trading on Unique Knowledge

To understand the social benefits of insider trading, we have to first realize that stock prices mean something. They reflect real facts about the world, such as the assets and liabilities of a particular corporation and how effectively its current management is using resources to satisfy customers.

If a computer glitch suddenly swapped the prices randomly on all corporate stocks, the result would be disastrous, and it would affect "Main Street" as much as Wall Street. For an exaggerated example, if the share price of Microsoft fell from its current level of around $25 down to $1, a "corporate raider" might find it very profitable to borrow money, buy a controlling share in the company, and sell off all company assets to the highest bidders. The high price of $25 per share fends off such efforts to break up the successful company. The assets currently owned by the Microsoft Corporation are best deployed by Microsoft, rather than being integrated into different organizations around the world.

In general, speculators perform a useful social service when they are profitable. By buying low and selling high (or by short-selling high and covering low), stock speculators actually speed up price adjustments and make stock prices less volatile than they otherwise would be.

In this context, we can see the absurdity of the general view of "insider trading." There is a whole literature on the economic analysis of the subject, and economist Alex Padilla's 2003 dissertation defended the practice from a specifically Austrian angle. In a nutshell, insider trading is beneficial because it moves market prices closer to where they ought to be. Those profiting from "inside knowledge" actually share that knowledge with the rest of the world through their buying and selling.

Insider Trading: Who Is the Victim?

Above, we acknowledged the fact that obtaining information in illegal ways obviously had actual victims. But the mystique behind "insider trading" suggests that somehow if a person financially profits from special knowledge, that he or she is bilking the general public.

In general, this analysis doesn't hold up, as Murray Rothbard has pointed out. For example, suppose a Wall Street trader is at the bar and overhears an executive on his cell phone discussing some good news for the Acme Corporation. The trader then rushes to buy 1,000 shares of the stock, which is currently selling for $10. When the news becomes public, the stock jumps to $15, and the trader closes out his position for a handsome gain of $5,000. Who is the supposed victim in all of this? From whom was this $5,000 profit taken?

The $5,000 wasn'ttaken from the people who sold the shares to the trader. They were trying to sell anyway, and would have sold it to somebody else had the trader not entered the market. In fact, by snatching the 1,000 shares at the current price of $10, the trader's demand may have held the price higher than it otherwise would have been. In other words, had the trader not entered the market, the people trying to sell 1,000 shares may have had to settle for, say, $9.75 per share rather than the $10.00 they actually received. So we see that the people dumping their stock either were not hurt or actually benefited from the action of the trader.

In fact, the only people who demonstrably lost out were those who were trying to buy shares of the stock just when the trader did so, before the news became public. By entering the market and acquiring 1,000 shares (temporarily), the trader either reduced the number of Acme shares other potential buyers acquired, or he forced them to pay a higher price than they otherwise would have. When the news then hit and the share prices jumped, this meant that this select group (who also acquired new shares of Acme in the short interval in question) made less total profit than they otherwise would have.

Once we cast things in this light, it's not so obvious that our trader has committed a horrible deed. He didn't bilk "the public"; he merely used his superior knowledge to wrest some of the potential gains that otherwise would have accrued as dumb luck to a small group of other investors.

To repeat, stock-market speculation is not a zero-sum activity. Even though we can look at any particular transaction and tally up the "winners" and "losers," the presence of speculators enhances the overall functioning of the stock market. For example, the market for any particular security is more liquid when there are rich speculators who will quickly pounce on a perceived mistake in pricing. If an institutional investor (such as a firm managing pensions) suddenly has a cash crunch and needs to dump its holdings, speculators will swoop in and put a floor under the fire-sale price. This is good for the beleaguered pension fund, and for the stock market in general.

Laws against Insider Trading Give the Government Arbitrary Power

Crackdowns on insider trading are harmful because they chill the cultivation of superior knowledge and speculative correction of market prices. Beyond this loss of general economic efficiency, insider-trading laws are insidious because of the arbitrary power they give to government officials.

In the specific case of Rajaratnam, prosecutors for the first time relied extensively on wiretaps to prove their allegations of insider trading. Legal experts predict that the government will expand its eavesdropping on the financial community in light of this courtroom "success."

More generally, Murray Rothbard argued that every firm on Wall Street is technically engaging in "insider trading." If they literally relied only on information that was available to the public, how could they make any money? Thus, the government has the statutory authority to harass or even shut down anybody in the financial sector who doesn't play ball. In Making Economic Sense, Rothbard declared,

There is another critical aspect to the current Reign of Terror over Wall Street. Freedom of speech, and the right of privacy, particularly cherished possessions of man, have disappeared. Wall Streeters are literally afraid to talk to one another, because muttering over a martini that "Hey, Jim, it looks like XYZ will merge," or even, "Arbus is coming out soon with a hot new product," might well mean indictment, heavy fines, and jail terms. And where are the intrepid guardians of the First Amendment in all this?

But of course, it is literally impossible to stamp out insider trading, or Wall Streeters talking to another, just as even the Soviet Union, with all its awesome powers of enforcement, has been unable to stamp out dissent or "black (free) market" currency trading. But what the outlawry of insider trading (or of "currency smuggling," the latest investment banker offense to be indicted) does is to give the federal government a hunting license to go after any person or firm who may be out of power in the financial-political struggles among our power elites. (Just as outlawing food would give a hunting license to get after people out of power who are caught eating.) It is surely no accident that the indictments have been centered in groups of investment bankers who are now out of power.

To drive home just how arbitrary and non-criminal "insider trading" really is, consider this scenario: Suppose someone had been planning on buying shares of Acme, but just before doing so, he caught wind of a bad earnings report. In light of the new information (which was not yet public), the person refrained from his intended purchase. Should this person be prosecuted for insider non-trading?

 

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Red Flag Laws: The Latest Anti-Gun Scheme

07/27/2018José Niño

Gun control may be coming to a legislature near you.

In the wake of the Parkland, Florida, and Santa Fe, Texas, shootings, elected officials on both sides of the political aisle are rallying around “red flag” legislation.

Extreme Risk Protection Orders (ERPOs), informally known as red flag laws, are gaining traction in legislatures nationwide. Red flag laws are presented as a common-sense proposal to disarm people who allegedly present a danger to themselves or others around them.

Political leaders assure gun owners red flag laws won’t trample over civil liberties and are a middle ground solution that appease pro-gunners and gun controllers alike. But the devil is in the details when dealing with any form of government intervention.

The Potential Threat of Red Flag Laws

In Gunpowder Magazine, Ted Patterson details the potential dangers of “red flag” laws. Four points stick out the most:

1. Due process rights are put on the chopping block.

Anti-gun family members, friends, or acquaintances can levy dubious accusations to justify the confiscation of law-abiding gun owners’ guns. They can take these accusations to a court of law, even if the individual in question was not charged or convicted of a crime. In turn, due process rights are turned upside down, as gun owners are presumed to be guilty and must then prove their innocence.

2. Indefinite time frames for gun confiscation.

The duration of ERPOs is unclear — which could end up being weeks, months, or even a year. Gun owners would then be forced to go to court multiple times just to win their Constitutional rights back.

3. Red Flag Laws have Bipartisan Support

What makes red flag laws even more dangerous is the bipartisan support they currently boast. It is no secret when both parties come together on legislative matters, nothing good can come out of it.

Political insiders constantly remind us that Republicans are staunch supporters of the Second Amendment. They contend Republicans play a pivotal role in defending our gun rights, and any criticism directed toward them is unjustified.

But nothing could be further from the truth. A Republican governor in Maryland recently signed a red flag bill into law, while Republicans in states like Colorado and Pennsylvania have actively pushed red flag bills of their own.

Lawmakers under the impression that compromising on red flag laws will curtail further gun control attempts, are in for a rude awakening. The nature of the government beast is to expand.

Economist Ludwig von Mises recognized full well how interventionism is “illogical and unsuitable, as it can never attain what its champions and authors hope to attain.” Once the regulations fail, the political class will clamor for even more regulations to “fix” the problems they ironically created in the first place.

This has been on display in sectors such as healthcare. Under the banner of “compassionate conservatism,” George W. Bush signed Medicare, Part D into law — the largest welfare expansion since Medicare was originally established in 1965.

Even with the passage of Medicare, Part D, healthcare interventionists were still not satisfied. Once Democrats returned to power with significant majorities in both chambers of Congress, then President Barack Obama passed a hefty piece of government intervention in Obamacare with ease.

We can expect the same dynamic to occur if politicians start kowtowing to red flag laws. The recent passage of Fix NICS is already a troubling development.

At this point in the game, it may behoove gun rights activists to start shifting their focus toward decentralization and fight for expanding gun rights in their own backyards instead of looking for Washington to change its ways.

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Reminder that Bill Kristol and the Neocons are Always Wrong About Everything

07/25/2018Andrew Syrios

Neocons are a group that virtually no one likes. Indeed, I've never met a single person who identified as one. In fact, I've never met a single person who knew what neocon was and didn't outright hate them. Part of that is probably because they are a bunch of warmongers who are always wrong about everything. But they do, unfortunately, have a wildly disproportionate amount of influence in Washington.

As far as being wrong about everything goes, Bill Kristol is the all-time champion. Here's a very short list . But they include; Obama didn't stand a chance in the 2008 election, echoing that the insurgency was in its last throes, that Iraq wasn't in a civil war, that Trump would pick Christie as his running mate and on and on and on. But this one from before the Iraq war started is truly legendary:

Unfortunately, the Twitter handle "Kristol in History" is now inactive. But if you're looking for a good chuckle, it's worth reading through a few:

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