Power & Market
Let interest rates rise. Better yet, let interest rates function in the marketplace, wholly independent of central bank attempts at rate-setting or targeting.
How? Not through a laughably small and slow process of Fed tapering, but through a wholesale and aggressive selloff of assets still polluting the Fed's balance sheet since it began aggressively those assets from commercial bank in 2008.
This was the critical point made by all three speakers at our event in Nashville this past weekend: interest rates need to rise before any true economic recovery can occur. The manipulation of interest rates by the Fed and other central banks causes untold distortions throughout the entire economy. Unless and until we address this problem, no fiscal or monetary policy changes will make much sense or have much salutary effect. Money and credit will continue to flow into less than optimal uses, investors will be forced to continue chasing yields in the casino equity markets, and Congress (plus other western legislatures) will continue to produce trillion dollar annual deficits without much worry about debt service.
Perhaps worst of all, the world will continue to believe a fairy tale: that the Fed effectively recapitalized US commercial banks in the 2008 crisis and through successive rounds of QE without pain or consequences. Are we really to believe the monetary base underpinning the world's reserve currency can be quadrupled in less than a decade without causing lasting damage? That gross overspending by Congress can be wished away simply by having the Fed provide a ready market for Treasury debt at miniscule interest rates? Or that interest rates should have no connection to the savings habits of society?
It all strains credulity, which is precisely why monetary policy relies so heavily on technocratic jargon and opaque processes: they want to confuse or bore us into not paying attention. And thus the can is kicked down the road, politically and policy-wise. That's how we became a high time preference society almost by stealth.
You can watch these engaging presentations by Dr. Robert Murphy, Carlos Lara, and myself here.
These excerpts from my talk attempt to remind the listener that none of this is normal, in fact quite the opposite. Not too long ago prosperous societies were based on the notion of capital accumulation, of producing more than they consumed, making the next generation better off in the process.
This is the fundamental and foundational change that has to occur. We need real, positive interest rates, meaning rates above inflation rates. We have to reward saving if we intend to have a growing or sustainable economy.
It is not exaggeration to say interest rates drive civilization.
They are the most important signals in an economy. Everything flows from them, because the cost of borrowing money effects the cost of almost everything.
This is the fundamental and inescapable starting point for building not only a real economy but a real culture. Every healthy society accumulates capital, every healthy society produces and saves more than it consumes and borrows. The human desire to leave something to future generations explains why all of us sit in splendor today, in this restaurant, enjoying conditions our great grandparents could not have imagined.
To do this you need actual real interest rates, market prices for money. Savers and borrowers, supply and demand, need to meet. We have a mechanism for this, it’s called the market. Without market prices you have socialism, the opposite of markets.
So why do so many otherwise free-market economists not object to monetary central planning?
The most important interest rate is the Federal Funds rate, the rate at which commercial banks borrow from each other overnight if they need to meet reserve requirements for their loans. The Fed controls this rate, or “targets” it, by manipulating the amount of reserves banks have in their accounts with the Fed. Banks with high reserves don’t much need to borrow from each other, so the Fed Funds rate stays low. And since 2008 commercial banks have received interest on excess reserves parked at the Fed, which encourages high balances and keeps rates low.
All commercial interest rates — e.g., the interest you pay on your mortgage — flow from the Fed Funds Rate on a cost-plus basis.
But when the Federal Reserve effectively keeps interest rates lower than they would be naturally, it creates a terrible disconnect between lenders and borrowers. And this disconnect causes unbelievable distortions throughout the economy. As David Stockman says, because of central banks there is no honest pricing of goods anywhere — we simply don’t know, for example, what a barrel of oil or a bushel of wheat or a Honda Accord should cost. The Fed has distorted the single most important price in the entire economy — the Federal Funds rate.
At first I was quick to dismiss the lawsuit by a 20-year old Oregon man against Dick's Sporting Goods as another attempt at victimization for cheap exposure, but the details are more interesting than at first glance. The suit focuses on Dick's recent move to ban gun sales to customers under the age of 21, which the plaintiff argues goes against Oregon's laws on discrimination. This is the same law that was used against a Christian Oregon baker in a court case similar to the one now under the consideration of the Supreme Court.
Many libertarians have criticized the Colorado's case before the Supreme Court for relying on the argument that the law restricts the bakers' first amendment right to expression and religion. In a libertarian society, the issue would simply be one of property rights — with the right of the baker to refuse service to any client he does not want to do business with. The problem, as Ryan McMaken has noted, is that public accommodation laws have effectively neutered the property rights of business owners in the eyes of the court. As such, for practicality sake, the bakers legal strategy may be his best hope at having the court side in his favor.
Dick's, of course, would have a hard time making that case, and the wording of the Oregon law seems to make this case a clear one. The law clearly states that discrimination based on age is illegal, and Oregon law protects the right of anyone over 18 to purchase and own a gun.
Now that we have a case that involves the opposite end of a cultural battle, perhaps this will force the state of Oregon to re-evaluate its discrimination laws.
Last year on the campaign trail, crowds roared when Donald Trump denounced his opponent as "trigger-happy" Hillary. But President Trump is rapidly incarnating the vice he condemned. Nowhere is this more evident than in Syria, where Trump’s recklessness risks dragging America into a major war.
U.S. policy toward Syria has been a tangle of absurdities since 2012. President Obama promised 16 times that he would never put U.S. "boots on the ground" in the four-sided Syrian civil war. He quietly abandoned that pledge and, starting in 2014, launched more more than 5,000 airstrikes that dropped more than 15,000 bombs on terrorist groups in Syria.
Four years ago, Trump warned in a tweet: "If the U.S. attacks Syria and hits the wrong targets, killing civilians, there will be worldwide hell to pay." But the Trump administration has sharply increased U.S. bombing while curtailing restrictions that sought to protect innocents. A British-based human rights monitoring group estimated Friday that U.S.-led coalition strikes had killed almost 500 civilians in the past month — more than any month since U.S. bombing began.
Read the rest at USA Today
In Liberalism (p.115), Mises argued that "the state, the government, the laws must not in any way concern themselves with schooling or education, [which] must be left entirely to parents and to private associations and institutions."
The Private Academy project, founded under the umbrella of the Romanian Mises Institute in 2015, started out to do just this: to offer an alternative to the decades of nationalized higher education from which learning needed to be reclaimed and repaired.
The purely private endeavor started small, with seminars on Austrian economics, and is now growing to encompass philosophy, literature, politics, religion, and the arts, in an effort to recover the "lost tools of learning". You can find out more about the project here, and visit the website here.
This a great undertaking, and a difficult one. But I hope to see many more like it in all the corners of the world.
“Democracy Dies in the Darkness” is the proud motto of the Washington Post. But, considering the past week’s frenzy, the new motto for much of the media and many Democrats is, “Disclosure is the Death of Democracy.” Unfortunately, the uproar around the release of the Nunes memo totally missed the deadly political peril posed by pervasive federal secrecy.
Shortly before the memo became public, President Trump tweeted that “the top Leadership and Investigators of the FBI and the Justice Department have politicized the sacred investigative process.” But any “sacred investigative process” exists only in the imaginations of pro-government pundits and high school civics textbooks. The FBI and Justice Department have a century-long history of skewering targets to gratify their political masters, while the FISA court routinely heaves buckets of judicial hogwash to countenance the wholesale destruction of Americans’ constitutional rights.
Former FBI agent Asha Rangappa, writing in the New York Times, labeled the Nunes memo a “shame” and urged Americans to presume that “most government servants are ultimately acting in good faith and within the constraints of the law.” But blindly relying on positive thinking is a recipe for political servitude. The FISA court has been a fount of outrages because it is an American Star Chamber: the court meets in secret, only hears the government’s side, and approves 99 percent+ of all the search warrants requested.
Much of the backlash against the memo’s release portrayed the FBI as a FISA Vestal Virgin. The FBI issued with a grim statement: “We are committed to working with the appropriate oversight entities to ensure the continuing integrity of the FISA process." Former FBI chief James Comey tweeted that the Nunes memo “wrecked the House intel committee, destroyed trust with Intelligence Community, damaged relationship with FISA court.”
But for more than a decade, the FISA court has repeatedly complained about deceptive FBI agents seeking turbo-charged secret FISA warrants. In 2002, the court revealed that FBI agents had false or misleading claims in 75 cases. In 2005, FISA chief judge Colleen Kollar-Kotelly proposed requiring FBI agents to swear to the accuracy of the information they presented; that never happened because it could have “slowed such investigations drastically,” the Washington Post reported. So FBI agents continued to have a license to exploit FISA secrecy to lie to the judges.
Last year, a FISA court decision included a 10-page litany of FBI violations, which “ranged from illegally sharing raw intelligence with unauthorized third parties to accessing intercepted attorney-client privileged communications without proper oversight.” How many times did FBI agents make false claims to FISA judges while Comey was boss? It’s a secret. The FISA court also complained that the National Security Agency was guilty of “an institutional lack of candor” connected to “a very serious Fourth Amendment issue” — i.e, ravaging Americans’ constitutional right to privacy.
Syracuse University law school professor William Banks asserted, “I can't recall any instance in 40 years when there's been a partisan leaning of a FISA court judge when their opinions have been released." But this is only because, inside the Beltway, being pro-Leviathan is pragmatic, not partisan. The FISA court has repeatedly presumed that if the feds violate everyone’s privacy, they violate no one’s privacy -— so there is no constitutional problem.
In 2006, the FISA court signed off on effectively treating all Americans as terrorist suspects. The court swallowed the Bush administration’s lawyers’ bizarre interpretation of the Patriot Act, claiming that the telephone records of all Americans were “relevant” to a terrorist investigation.
In 2009, the FISA court upheld surveillance based on a 2007 law that effectively decreed that any American who exchanged emails or phone calls with foreigners forfeited their right to privacy. A FISA Appeals Court decision dismissed concerns because the government had “instituted several layers of serviceable safeguards to protect individuals against unwarranted harms” — so anyone whose privacy was zapped had no right to complain.
Read the rest at The Hill
"Could Bill Belichick’s grasp of economics be the key to the Patriots’ success?" asks Paul Solman at PBS's Making Sen$e. He gives examples of Belichick seemingly understanding the concepts of opportunity cost and diminishing returns (from the perspective of neoclassical economics). I much prefer Carl Menger's way of formulating these concepts (more technical discussion here). And Tho Bishop's excellent discussion of Belichick as entrepreneur provides a more comprehensive explanation of how the Patriot coach operates. But it's always nice to have some economics included with your Super Bowl enjoyment.
When Robert Mueller was appointed last May as Special Counsel to investigate Trump, Politico Magazine gushed that “Mueller might just be America’s straightest arrow — a respected, nonpartisan and fiercely apolitical public servant whose only lifetime motivation has been the search for justice.” Most of the subsequent press coverage has shown nary a doubt about Mueller’s purity. But, during his 11 years as director of the Federal Bureau of Investigation, Mueller’s agency routinely violated federal law and the Bill of Rights.
Mueller took over the FBI one week before the 9/11 attacks and he was worse than clueless after 9/11. On Sept. 14, 2011, Mueller declared, “The fact that there were a number of individuals that happened to have received training at flight schools here is news, quite obviously. If we had understood that to be the case, we would have — perhaps one could have averted this.” Three days later, Mueller announced: “There were no warning signs that I’m aware of that would indicate this type of operation in the country.” His protestations helped the Bush administration railroad the Patriot Act through Congress, vastly expanding the FBI’s prerogatives to vacuum up Americans’ personal information.
Deceit helped capture those intrusive new prerogatives. The Bush administration suppressed until the following May the news that FBI agents in Phoenix and Minneapolis had warned FBI headquarters of suspicious Arabs in flight training programs prior to 9/11. A House-Senate Joint Intelligence Committee analysis concluded that FBI incompetence and negligence “contributed to the United States becoming, in effect, a sanctuary for radical terrorists.” FBI blundering spurred the Wall Street Journal to call for Mueller’s resignation, while a New York Times headline warned: “Lawmakers Say Misstatements Cloud F.B.I. Chief's Credibility.”
But the FBI was off and running. Thanks to the Patriot act, the FBI increased by a hundredfold — up to 50,000 a year — the number of National Security Letters (NSLs) it issued to citizens, business, and nonprofit organizations, and recipients were prohibited from disclosing that their data had been raided. NSLs entitle the FBI to seize records that reveal “where a person makes and spends money, with whom he lives and lived before, how much he gambles, what he buys online, what he pawns and borrows, where he travels, how he invests, what he searches for and reads on the Web, and who telephones or e-mails him at home and at work,” the Washington Post noted. The FBI can lasso thousands of people’s records with a single NSL — regardless of the Fourth Amendment’s prohibition of unreasonable warrantless searches.
Read more at The Hill
For some reason, one of the worst reviewed fast food restaurants in America has made the bold decision to get into political activism - and in doing so demonstrated how ridiculous the policy they are advocating truly is.
In order to protest last month's decision to repeal Net Neutrality, Burger King has created a video for social media showing one of their restaurant repealing "Whopper neutrality." In it, "customers" become outraged when they are told that they will have to pay extra in order to have their Whopper order fulfilled right away. As the BK Worker behind the counter explains "Burger King Corporation believes that they can sell more and make more money selling chicken sandwiches and chicken fries, so they are slowing down access to the Whopper." The video ends with the customers claiming that their regrettable decision to eat at Burger King helped educate them on what net neutrality means to them.
Unfortunately their attempt at John Oliver-level policy analysis has some obvious problems.
For one, Burger King does not have a "Whopper neutrality" policy - and for good reason. If a family of five places a large order, while the next customer simply orders an ice cream cone, most Burger King employees will not refuse to serve up the dessert until after they fulfill the first order. The aim is to serve as many customers, as quickly as possible.
Similarly, a Whopper meal comes in various sizes - all with different prices - all so that customers have more flexibility based on having their food desires met. Imagine if a government regulator decided that since Americans have a right to have their thirst quenched - no matter its size - all fast food restaurants had to price all drink sizes the same? The result would be the prices for small drinks going up, while restaurants having to submit to occasional inspections by government agents to make sure no one was violating beverage neutrality laws. (This of course would still manage to not be the worst soda-related policy that's been proposed.)
Additionally, Burger King certainly has the right to not prioritize delivering their customers food in a timely matter, just as customers have a right to avoid their services as a result. Whether or not the customers in the video were authentic or not, their reaction to the absurd fictional policy is how you'd expect someone to act. The video suggests that none of them would be excited about returning to Burger King if this had become actual franchise operating procedure. Once again, the market has its own ways of punishing bad actors.
Which is precisely why I will be avoiding Whoppers myself for the foreseeable future.
Congressional investigators were rocked this weekend when the FBI notified them that five months of text messages from a top FBI investigator into the Trump campaign’s Russian connections had mysteriously vanished.
The FBI-issued cell phone of Peter Strzok, whose previous texts to his mistress (also an FBI employee) showed fierce hostility to Trump, suddenly had problems due to “software upgrades” and other issues — and voila — all the messages between the two from Dec. 14, 2016, to May 17, 2017 vanished. Strzok, who oversaw the Trump investigation from its start in July 2016, was removed from Mueller’s Special Counsel investigation last summer after the Justice Department Inspector General discovered his anti-Trump texts.
Stephen Boyd, the assistant attorney general for legislative affairs, notified a Senate committee that “data that should have been automatically collected and retained for long-term storage and retrieval was not collected.” The missing texts could have obliterated the remnants of credibility of the FBI’s investigation of the Trump campaign.
Conservatives are caterwauling about the vanished evidence but this type of tactic has long been standard procedure for the FBI. Acting FBI chief Patrick Gray was forced to resign in 1973 after it was revealed that he had burned incriminating evidence from the White House in his fireplace shortly after the Watergate break-in by Nixon White House “plumbers.” Gray claimed he was resigning to preserve the “reputation and integrity” of the FBI — but that hasn’t worked out so well.
The FBI has a long history of “losing” evidence that would tarnish its halo. And for most of the agency’s history, judges and Congress have let the FBI sweep its dirt under the rug.
Writes James Bovard in USA Today:
The Justice Department was caught in another high-profile travesty last month that continues to reverberate through the western states. On Dec. 20, federal judge Gloria Navarro declared a mistrial in the case against Nevada rancher Cliven Bundy and others after prosecutors were caught withholding massive amounts of evidence undermining federal charges. This is the latest in a long series of federal law enforcement debacles that have spurred vast distrust of Washington.
Bundy, a 71-year old Nevadan rancher, and his sons and supporters were involved in an armed standoff with the Bureau of Land Management (BLM) beginning in 2014 stemming from decades of unpaid cattle grazing fees and restrictions. The Bundys have long claimed the feds were on a vendetta against them, and 3,300 pages of documents the Justice Department wrongfully concealed from their lawyers provides smoking guns that buttress their case.
A whistleblowing memo by BLM chief investigator Larry Wooten charges that BLM chose "the most intrusive, oppressive, large scale and militaristic trespass cattle (seizure) possible'' against Bundy. He also cited a "widespread pattern of bad judgment, lack of discipline, incredible bias, unprofessionalism and misconduct, as well as likely policy, ethical and legal violations" by BLM officials in the case. BLM agents even "bragged about roughing up Dave Bundy, grinding his face into the ground and Dave Bundy having little bits of gravel stuck in his face'' while he was videotaping federal agents. Wooten also stated that anti-Mormon prejudice pervaded BLM's crackdown.
The feds charged the Bundys with conspiracy in large part because the ranchers summoned militia to defend them after they claimed that FBI snipers had surrounded their ranch. Justice Department lawyers scoffed at this claim in prior trials involving the standoff but newly-released documents confirm that snipers were in place prior to the Bundy’s call for help.
The feds also belatedly turned over multiple threat assessments which revealed that the Bundys were not violent or dangerous, including an FBI analysis that concluded that BLM was "trying to provoke a conflict" with the Bundys. As an analysis in the left-leaning Intercept observed, federal missteps in this case “fueled longstanding perceptions among the right-wing groups and militias that the federal government is an underhanded institution that will stop at nothing to crush the little guy and cover up its own misdeeds.”