Power & Market

Why Trust the Experts?

02/11/2021Lipton Matthews

It has now become commonplace to accuse anyone who opposes covid lockdowns of being “antiscience.” This sort of treatment persists even when published scientific studies suggest the usual prolockdown narrative is wrong. support the antilockdown position.

There are sociological, economic, and cultural reasons why experts will take the politically popular position, even when the actual scientific evidence is weak or nonexistent.

Experts Are Biased and Are Self-Interested like Everyone Else

Though we are often encouraged to listen to experts because of their intelligence and expertise, there is a strong case for us to be skeptical of their pronouncements.

Beliefs serve a social function by indicating one’s position in society. Hence to preserve their status in elite circles, highly educated experts may subscribe to incorrect positions, since doing do so can confer benefits. Refusing to hold a politically popular viewpoint could damage one’s career. And since upper-class professionals are more invested in acquiring status than working people, we should not expect them to jettison incorrect beliefs in the name of pursuing truth. Cancel culture has taught us that promoting the world view of the elite is more important than truth to decision makers.

So why should we listen to experts when they give greater primacy to appeasing elites than solving national problems? In contrast to what some would want you to believe—revolting against experts is not an attack on science, considering that little evidence suggests that they care about scientific truth. Let us not fool ourselves. People occupying powerful offices are uninterested in being toppled from positions of influence, and as such, they will seek to minimize views that threaten their professional or intellectual authority. As a result, expecting influential bureaucrats to value truth is unwise. Truth to a bureaucrat is merely the consensus of the intelligentsia at any given time.

Of note is also the lesser ability of intelligent people to identify their own bias. Stemming from their greater levels of cognitive development, it is easier for intelligent people to rationalize nonsense. Justifying extreme assumptions requires a lot of brainpower, so this could possibly explain why highly intelligent people—specifically, people “higher in verbal ability”—are inclined to express more extreme opinions. Our culture has immense faith in expert opinion, although the evidence indicates that such confidence must be tempered by skepticism. Intelligent people, whether they be experts or politicians, do not have a monopoly on rationality.

Admittedly, intelligence may act as a barrier to objective thinking. Brilliant people are adept at forming arguments, therefore even when confronted with compelling data, they are still able to offer equally riveting counterpoints. Smart people can engage opponents without resorting to a bevy of studies to buttress their conclusions. Thus, clearly, the proposals of experts ought to be held to a higher standard primarily because they are smarter than average.

The capacity of an intelligent person to provide coherent arguments in favor of his ideas can be impressive, and may only serve to solidify him or her in his or her conclusions. For instance, in the arena of climate change experts have recommended policies that are consistent with data on nothing but the claim that a consensus supports such proposals. Promoting the wide-scale use of renewables, for example, is usually touted as a sustainable climate strategy despite the fact that studies argue the reverse.

Counter to the rantings of the intelligentsia, we should implore more people to express skepticism of experts. Due to their high intelligence, experts tend to be more inflexible and partisan than other people. This is solid justification for ordinary people to be skeptical of the intellectuals in charge of national affairs. Unlike wealthy bureaucrats, who are insulated from the economic fallout of their bad ideas, the poor usually bear the burden.

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Wall Street Regulators Love Broken Windows

01/29/2021Pia Varma

The Joker was right about one thing…introduce a bit of chaos and everyone loses their mind. And that’s just what happened with the fervor created by a rogue group of investors on Reddit as they pushed the price of GameStop and other nearly defunct companies higher and higher. Regulators usually have no idea what to do with themselves during a black swan situation like this, but they know they need to do something. And it doesn’t matter what the unintended consequences might be. This rally has given them the perfect opportunity to crack down on Wall Street without actually looking at what caused the issues in the first place.

I am reminded of Frédéric Bastiat’s parable of the broken window. It goes something like this: a boy breaks a window at his father’s shop. His father hires the town glazier to replace the broken plane. The glazier than spends the money he earns on himself or his business, thus stimulating the economy. The townspeople decide that the boy has done the community a huge service and everyone is better off as a result of this happy accident.

However, Bastiat points out that this is a fallacy. By forcing his father to pay for the window, the boy has reduced his father’s disposable income. His father will not be able to purchase new shoes he may have been wanting or invest in his own business; thus, other industries will experience losses. The time he spends dealing with the broken window could have been put to better, more productive use. Furthermore, replacing the window is a maintenance cost, not a purchase of new goods, and maintenance does not stimulate production.

This parable has typically been used to discredit the idea that going to war stimulates a country’s economy. But I think this parable perfectly highlights the general tendency of bureaucrats and policymakers toward implementing sweeping reforms without looking at the unintended consequences. Sound bites and feel-good-isms, not full analyses from all angles, rule the day.

For instance, there was a time in 2008 when regulators in the United States banned naked short selling without considering the unintended consequences. There was also a media war against futures trading, derivatives and securities (all legitimate and very important market mechanisms that actually help to lower volatility and spread wealth) without any acknowledgement of the unintended consequences. In other words, these regulations broke a lot of windows. But some people on Wall Street found a way to profit from these broken windows. This doesn't mean the regulations weren't damaging. But the regulators can see only those who benefited. Meanwhile, there has been very little mention of the continued unintended consequences of maintaining low interest rates, the real culprit of all these problems. (After all, it was zero-interest rates along with the Community Reinvestment Act, which meant everyone with a pulse could buy a house in the first place, that made the mortgage-backed securities so toxic.)

Again now, Wall Street regulators want to get involved over the Reddit/GameStop/AMC hype. Blame Wall Street, as usual, for treating the stock market as a personal casino and for the hubris that has ensued as the little guy suffers.

But what do you expect with near-negative interest rates? That hubris is the result of Band-Aid after Band-Aid after Band-Aid. Whether you call it ZIRP (zero interest rate policy), QE (quantitative easing) 1/2/3, bailouts, stimulus, or some other such name, a rose is still a rose. 

Can the Markets Rein in Wall Street?

And now a legitimate market solution has presented itself to combat the old boys' club of Wall Street. And this solution is doing something Elizabeth Warren had not been able to do…hold Wall Street accountable. This is partly because Warren never understood the problem. The problem was the regulation itself. 

Of course, there will be plenty of concern in Washington and at the SEC (Securities and Exchange Commission) about what happened with GameStop, AMC, and others, and the busybodies will want to get involved. The problem when legislators get involved, though, is that they don’t understand or are not honest about the full picture. For now, regulators like Warren and Alexandria Ocasio-Cortez seem to be on the side of the small investor, criticizing the Robinhood app after it banned them from buying stock.

Online trading forums, on the other hand—like those at Reddit—allow smaller, amateur investors a seat at the table. This is the democratization of finance at its finest.

As this unfolded, I was instantly reminded of Thomas Friedman’s electronic herd metaphor:

The electronic herd cuts no one any slack….The herd is not infallible. It makes mistakes too. It overreacts and it overshoots. But if your fundamentals are basically sound, the herd will eventually recognize this and come back. The herd is never stupid for too long. In the end, it always responds to good governance and good economic management.

We also saw the herd in action after Trump/Twitter/Parler debacle. Both Twitter and Facebook lost billions in market value overnight. 

The move toward decentralization and democratization of technology and finance is the shining lifeboat in the storm of bureaucratic chaos. And forums like Reddit are our Galt's Gulches. Regulating these forums could have huge unintended consequences. But hey, if things go sour, they could always just hire a glazier to patch things up. 

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When Fascism Comes, It Will Be Wearing a Mask

01/26/2021Ron Paul

Listen to the Audio Mises Wire version of this article.

Almost immediately after his inauguration, President Joe Biden began creating new government dictates via executive orders. Many of these executive orders concern coronavirus, fulfilling Biden’s promise to make ramping up a coronavirus-inspired attack on liberty a focus of his first one hundred days.

One of Biden’s executive orders imposes mask and social distancing mandates on anyone in a federal building or on federal land. The mandates also apply to federal employees when they are “on-duty” anywhere. Members of the military are included in the definition of federal employees. Will citizens of Afghanistan, Iraq, and other countries where US troops are or will be “spreading democracy” be happy to learn the troops shooting up their towns are wearing masks and practicing social distancing?

Another one of Biden’s executive orders forces passengers on airplanes, trains, and other public transportation to wear masks.

Biden’s mask mandates contradict his pledge to follow the science. Studies have not established that masks are effective at preventing the spread of coronavirus. Regularly wearing a mask, though, can cause health problems.

Biden’s mask mandates are also an unconstitutional power grab. Some say these mandates are an exercise of the federal government’s constitutional authority to regulate interstate commerce. However, the Constitution gives Congress, not the president, the power to regulate interstate commerce. The president does not have the authority to issue executive orders regulating interstate commerce absent authorization by a valid law passed by Congress. The Founders gave Congress sole law-making authority, and they would be horrified by the modern practice of presidents creating law with a “stroke of a pen.”

Just as important, the Commerce Clause was not intended to give the federal government vast regulatory power. Far from giving the US government powers such as the power to require people to wear masks, the Commerce Clause was simply intended to ensure Congress could protect free trade among the states.

Biden also signed an executive order supporting using the Defense Production Act to increase the supply of vaccines, testing supplies, and other items deemed essential to respond to coronavirus. The Defense Production Act is a Cold War relic that gives the president what can fairly be called dictatorial authority to order private businesses to alter their production plans, and violate existing contracts with private customers, in order to produce goods for the government.

Mask and social distancing mandates, government control of private industry, and some of Biden’s other executive actions, such as one creating a new “Public Health Jobs Corps” with responsibilities including performing “contact tracing” on American citizens, are the type of actions one would expect from a fascist government, not a constitutional republic.

Joe Biden, who is heralded by many of his supporters as saving democracy from fascist Trump, could not even wait one day before beginning to implement fascistic measures that are completely unnecessary to protect public health. Biden will no doubt use other manufactured crises, including “climate change” and “domestic terrorism,” to expand government power and further restrict our liberty. Under Biden, fascism will not just carry an American flag. It will also wear a mask.

Reprinted with permission. 

Image source:
Getty
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With Trump out of the Way, Suddenly We're Hearing Good News about Covid

01/21/2021Ryan McMaken

Listen to the Audio Mises Wire version of this article.

With Donald Trump safely out of the way, it is now safe for politicians and their friends in the media to begin scaling back their panicked hysteria over covid-19.

For example, last week the Democratic mayor of Chicago, Lori Lightfoot, suddenly had a change of heart on the city’s forced lockdowns and announced she’ll work to scale back the state’s covid-19 mandates. The local CBS affiliate reports:

Thursday morning, Lightfoot said she plans to have a conversation with Gov. JB Pritzker about how to begin rolling back virus mitigation efforts ASAP.

“I want to get our restaurants and bars reopened as quickly as possible,” she said.

Meanwhile, in Colorado, the governor announced a few hours before Biden was inaugurated that he was shutting down the state’s never-used emergency hospital. The local Fox affiliate reports:

The Colorado Division of Homeland Security and Emergency Management announced Tuesday evening that the Colorado Convention Center in downtown Denver will be decommissioned as an alternative care site for COVID-19 patients.

A spokesperson for the division confirms the Convention Center never housed any patients.

The Convention Center was prepared to house up to 2,200 patients if hospitals could not handle the demand. The conversion into a makeshift hospital was made in April 2020.

For months, the state’s governor, Jared Polis, insisted that the overflow hospital had to be maintained and that an enormous surge in cases could happen at any time. But then, at virtually the same time Biden was inaugurated, Polis announced these precautions weren’t needed anymore.

Meanwhile, the governor of Massachusetts (a Republican critic of Donald Trump) announced today that he “would begin lifting some coronavirus restrictions” including the stay-at-home advisory and the 9:30 p.m. curfew.

Keep in mind that the regular flu season doesn't peak until March, which means we ought to still be hearing about how we must fear the "twindemic" and how we still have a long, hard winter ahead of us. At least, that's what we were still hearing in December. But now, suddenly, with at least two months of the peak-mortality period to go, we're hearing that everything is headed in the right direction. It could all be a coincidence, but I remain skeptical. 

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IoSonoUnaFotoCamera via Flickr
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Why They Hate Trump So Deeply

Listen to the Audio Mises Wire version of this article.

In the words of Ronald Reagan, here we go again. The unbelievable hatred that Democrats, liberals, progressives, and the mainstream press have toward President Trump continues to consume them, with the latest manifestation being a second impeachment of President Trump, just a few days before he leaves office.

Isn’t the purpose of an impeachment to remove a public official from power? Trump is out of power on January 20. The impeachment trial won’t even be held until after January 20. What’s the point?

I’ll tell you the point: hatred—deep, unfathomable, all-consuming hatred for Donald Trump.

After all, if Trump committed a criminal offense by “inciting” an insurrection, a rebellion, a revolution, or a Reichstag fire, as his detractors are claiming, there is a remedy for that: a criminal prosecution. The Justice Department under President Biden could secure a criminal indictment against Trump the day he leaves office or afterward.

So, why go the impeachment route?

One big reason is the hope that if they can convict Trump, they can then go one critically important step further by voting to disqualify him from ever running for public office again, especially for the presidency.

Trump, of course, has suggested that he might run again in 2024. He already has many millions of dollars in the bank to finance another run. The last thing the Democrats and the mainstream press want is to have Trump back on the campaign trail spouting “End the steal by electing me again.” Given their obvious aim to forever bury any reference to the possibility of fraud in the 2020 election, including by censoring people or simply labeling them as traitors, to have Trump running again spouting off about a fraudulent election would be their worst nightmare. An impeachment conviction followed by a disqualification vote would end that threat.

What is it about Trump that has engendered so much deep hatred and rage among the Left?

After all, from a libertarian standpoint, Trump’s term has been an absolute disaster. His Berlin Wall along the border, which he promised would be paid for by Mexico but that was actually financed illegally through the use of a Pentagon slush fund. His destructive trade war with China. His continuation of the Pentagon’s and CIA’s forever wars that he promised to end. His deadly and destructive sanctions against Iran. His stoking of a crisis with North Korea, only to fall in love with a Communist dictator. And much more that go against the principles of libertarianism.

Yet, despite all of Trump’s antilibertarian actions, there is no deep visceral hatred among libertarians for the man, as there is among people of the Left. In fact, some libertarians even like or respect the guy.

Why is it so different for those on the left?

After all, it’s not as though there are philosophical differences. Both the Left and the Right, including Trump, favor things like Social Security, Medicare, Medicaid, welfare, the welfare state, farm subsidies, trade restrictions, the Federal Reserve, income taxation, the Pentagon, the CIA, the NSA, the FBI, foreign bases, foreign interventionism, coups, alliances with dictators, foreign aid, the drug wars, and much more socialism, interventionism, regulation, militarism, and empire.

And it’s not like the hatred began with the recent Capitol melee. It actually stretches all the way back to the very beginning of Trump’s administration, when the hatred so consumed the Left and the mainstream press that they spent the first two years convincing themselves, falsely, that Trump was a covert Russian agent, one whose assignment was to deliver America into the clutches of the nation’s Cold War rival. When that investigation went nowhere, it was followed by Impeachment I, which also went nowhere.

Consider Impeachment II. It provides another good example of the deep hatred that absolutely consumes these people. How much time and deliberation went into that vote? Answer: none. It was done immediately, without the careful consideration that should always go into such an important decision.

Blinded by their deep hatred of Trump, the Left and the mainstream press would respond, “What is there to deliberate? It’s clear that Trump is guilty of inciting an insurrection.”

Oh, but it is far from clear. In fact, some legal commentators are saying that Trump’s actual words and the timing of his words do not constitute “incitement” under the law. (See here and here.)

Moreover, it’s not at all clear that what happened at the Capitol was an “insurrection” or “rebellion” or a “revolution” or a “coup” or a “Reichstag fire.” It might actually have been nothing more than a peaceful protest gone awry, as protests and demonstrations sometimes do.

Regardless, if Trump himself didn’t do anything illegal, then why should he be impeached? Is the impeachment process to be used to remove a president simply because he is hated by the opposing party or because they disagree with his words or policies?

Indeed, as a libertarian I’d ask why mere words should ever be used to convict a person for “inciting” another person to act. Don’t people have free will? Those Capitol protestors were not automatons or even military personnel. They were perfectly able to say no to anyone who “incited” them to engage in illegal conduct. Why should a person who “incites” illegal conduct with mere words but doesn’t actually participate in the illegal conduct be liable for criminal behavior willingly committed by others?

But here’s the point: Why shouldn’t these issues have been carefully discussed and deliberated prior to the impeachment vote? Why weren’t there constitutional and legal scholars summoned to testify as part of the impeachment decision to give their legal opinions on whether Trump has done anything to merit removal from office?

Answer: because deep hatred causes people to act in impulsive and irrational ways.

Would you like to know the real reason for the deep, unfathomable, uncontrollable hatred and rage that these people have for Donald Trump?

I’ll tell you what it is.

It is acceptable practice for any politician and bureaucrat to criticize things that happen within the Washington, DC, sandbox in which these people play. But woe to the politician or bureaucrat who challenges the sandbox itself. He is toast.

No president since John Kennedy has dared to do that. Kennedy did it, especially in his famous Peace Speech at American University five months before he was assassinated. He said that the Cold War was a crock and that he was calling an end to it, which, needless to say, constituted a grave threat to the sandbox in which the national-security establishment had been playing and hoped to continue playing for the indefinite future.

We all know what happened to Kennedy, or at least those of us who are not afraid to examine and challenge the dark inner workings of the national security state sandbox. No president since Kennedy has dared to do that…until Donald Trump came along.

No matter his faults and failures and poor policy decisions, there is one indisputable fact about Donald Trump: He is not like the rest of the Republican and Democrat politicians or their followers and supporters in the mainstream press. During his campaign, he called them out all. He challenged their sandbox or, if you will, their swamp. He appeared to be willing to take on the military and its forever wars as well as the intelligence community and its nefarious, dark-side activities. He garnered lots of support and votes for that stance.

That’s why they hate him. No politician or bureaucrat is supposed to do that. And certainly no president is supposed to do that. Trump was a threat to their established order. He had to be smashed. He has to be terminated. That’s why they are trying desperately to ensure that he departs the political scene and is never permitted to return.

Oh sure, it’s true that for some unknown reason Trump ended up caving to the national security establishment. Early on, he surrounded himself with generals and warmongers and decided to continue their forever wars. He also surrendered to the CIA’s demands to keep its fifty-year-old JFK assassination records secret on the false claim that their disclosure would threaten “national security.”

Nonetheless, the die had been cast. Trump had committed the mortal sin of any national-security state—he had questioned the system itself. He had to go. They have to send a message that this type of thing will never be permitted again.

Reprinted from the Future of Freedom Foundation.

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What Defund the Police Gets Right

01/18/2021Andrew Cowley

For all the hullabaloo that surrounds the “Defund the Police” movement, we forget that our fellow citizens have legitimate concerns that must be openly and honestly discussed. Although the defund the police movement is surrounded by controversy, libertarians, conservatives, and liberals alike can find common ground in the sort of law enforcement that is required for a safe and secure neighborhood.

Those who embrace individual freedom and liberty should take the defund the police movement seriously. The driving force behind defunding the police is the thirst to govern our communities, and ourselves, without government coercion. If we defund the police, it must follow that communities are empowered to “police” their own neighborhoods as they see fit. Without government-sponsored police, law enforcement is privatized. And this is a good thing!

Libertarians hold the political philosophy that an individual needs to be recognized as such. Rights can only be applied to the individual, not to a group of individuals. The most supreme right of them all is the guarantee that personal property and individual freedom are never violated, without exception. This means that the rights to life, liberty, and the pursuit of happiness are not just ideals we strive for but actual rights that each individual person has been born with. These rights are not granted, given, or awarded to anyone by anyone. Instead, these rights are inherent in man’s existence and cannot be infringed upon by anyone or anything. The government is not exempt from this truth. No government, or individual, can violate the inherent right each person has to life, liberty, and the pursuit of happiness. Policing our communities is no different.

It is widely accepted that law enforcement is the responsibility of government. However, we must recognize that each community requires a different approach to policing. When considering population size, community diversity, resources available, etc., we can see that the law enforcement needs of places like New York City will necessitate a different approach from the one for Coeur d’Alene, Idaho—no matter how small the nuance. It is hard to deny that each specific community requires a unique approach.

Although the general theory of American individual liberty is recognized as good—life, liberty, and the pursuit of happiness—it is difficult to apply this theory to real-world circumstance. This is why the defund the police movement mistakenly conjoins two contradictory goals: (1) the freedom to police for communities to police themselves as they see fit, and (2) a heavy-handed government to make sure that happens.

The freedom to do what is best for your individual circumstance and a strong authority figure to enforce compliance cannot coexist. Unavoidably, the right to police the community you live in as you see fit will clash with some strong authority figure who wants to decide for you what they think the right way to police is. The ideal of people choosing what’s best for themselves becomes others deciding what’s best for them.

There are as many different opinions about what good policing looks like as there are politicians who lie—we couldn’t begin to count that high, even if we tried! The premise is correct—we must overhaul what policing looks like in practice—but the conclusion is wrong. Replacing one authority figure with another in order to rectify policing issues will not solve the problem.

Surely, the most ardent propolice individual must admit that a community where people feel safe is the prime goal, whether that is achieved through traditional policing or not. If we can offer people a safe community, is it important if that safety is achieved through a private company? Are we to believe that a community would reject a safe neighborhood merely because that safety was provided by a private company, rather than the government? I think not!

The defund the police movement makes a poignant case against the current system of policing and community involvement by the government. By uniting behind the cause of privatizing the police, we will make strides toward a safer and more respectful community.

History has shown that government will prioritize revenue and power over the safety of citizens. Enforcing arbitrary laws (like parking tickets) to generate revenue from fines, government funds bloated pensions and expands union control—and the safety and well-being of citizens takes a back seat. We can see this reality playing out in cities like Chicago, Baltimore, and Detroit. In Baltimore, government spending on police is more than half a billion dollars per year. Such a massive amount of money expended in the name of safety has produced one of the most dangerous cities in the United States.

There is a real, undeniable problem in minority neighborhoods—drugs, violence, and theft—and we must face that problem. The belief that the system (i.e., the police, government, capitalism, etc.) unfairly treats minorities (skin color, sexual preference, sexual identity, etc.) is a mainstay in modern culture and cannot be ignored. There is a prevailing belief that systemic racism has forced minority groups into a life of crime. Because government has a monopoly on law enforcement, there can be no solution that does not include cartel-like control without tearing down the entire system. This is why groups like Black Lives Matter believe that defunding the police is not a mere catchphrase—it is a call to reimagine the “system” in its entirety.

Although some state and local governments have agreed to “cut” law enforcement spending, calls for defunding the police have persisted. Appeals for compromise will go unheard. And this is a good thing!

Defunding the police and revamping law enforcement are legitimate goals that need to be addressed. Libertarians, conservatives, Republicans, and all other members of society should strive to recognize this ubiquitous issue.

The message of “defunding” the police is correct, even if the conclusion on how to fix bad community policing is not. It is true that government-sponsored policing has been, and is, destructive to some communities. We see this destruction nightly on our news channels. Elected officials have used law enforcement for their own protection, rather than for the protection of their constituents. Chicago mayor Lori Lightfoot used police as a personal protection service for her home as buildings burned and protestors looted stores nearby. Politicians claim gun laws are our way to salvation as they are escorted by an armed cadre of bodyguards. The police have been enlisted as a political tool rather than for public safety. It is hypocrisy at its finest!

Without government monopoly on law enforcement, no such abuse by politicians can exist. Why? Because paying customers are given preference, regardless of political standing.

The premise that a community has the right to decide how best to protect their neighborhood is a by-product of individual freedom. The defund the police movement is right: the government should have no say about how to police a neighborhood if that neighborhood doesn’t want the protection the government is offering. Forcing a community to accept whatever solution the government proposes has resulted in distrust of law enforcement personnel, runaway government spending, and the militarization of the police.

The conclusion the defund the police movement has come to—replace one government-controlled police force with another—is unfitting. The answer to creating a safer, more inclusive community is not through more government oversight and political heavy handedness. No! The answer is for the people to establish what works best for them in their individual circumstance. This is accomplished by privatizing law enforcement.

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What the Literature Actually Reveals about Raising the Minimum Wage

Despite economist Thomas Sowell’s laconically phrased observation that the real minimum wage is zero, progressive elements within the Democratic coalition are likely to push for increasing the federal minimum wage once Biden takes office. While whether or not to raise the minimum wage is therefore ultimately a political question, a school of thought has gained purchase within mainstream economic circles in recent decades that contravenes long-held classical assumptions about supply and demand. If the cost of a commodity increases, demand should fall if the price rises beyond the point at which the marginal utility of acquiring another unit of that commodity is less than the cost of another unit of that commodity (Sowell 2011). Not so with labor, argue these economists (Harris and Kearney 2016; Tcherneva 2020; Stiglitz 2012, 2020; Pollin and Luce 2000; Reich 2017). Because pay to labor constitutes a large part of aggregate demand, higher wages translate into more purchasing and hence an approximately equivalent increase in the sales of businesses to offset the higher cost of labor.

Such demand-side economics trace their origins to Keynes, but interest was rekindled by the publication of Card and Krueger’s empirical study of fast food workers in New Jersey and Pennsylvania (Card and Krueger 1993). Widely cited following its publication, the next decade saw a strong shift in opinion among economists. A survey by the American Economics Association found that well over half of its members now disagree or doubt that minimum wages by themselves cause unemployment or underemployment (The Economist, August 2020).

Such cautious inquiry has translated in the world of the post-2008 k-shaped recovery to demands for almost doubling the federal minimum wage. A host of academics have voiced their support for the Seattle minimum wage coalition, with even the formerly skeptical Paul Krugman making an about-face, writing in the New York Times that wages were so low that significantly raising the minimum wage would do no harm to the economy (Krugman 1998, 2015).

According to the literature, however, the real picture is more nuanced.

Based on the large body of research being compiled, we find evidence that raising the minimum wage affects different sectors of the economy differently, and that it is not clear what would happen in the event that the minimum wage is significantly increased (Neumark and Wascher 2007; Jardim et al. 2017).

Because of this, even left progressive economists like Thomas Picketty are skeptical of broadly raising minimum wages in an effort to offset wealth and income inequality. He is likely correct, as most of the economic inequality in the United States is structural in origin, the result of technological displacement, skills hierarchies, geographic concentration, and trade, fiscal, and monetary policies (Moore 2014).

Given the potential dangers and inability of the government to successfully execute such microeconomic tinkering during the 1960s and 1970s, a time of much more functional governance than now, it seems unlikely and unwise to grant the federal government the power to set wages in this way in an attempt to optimize economic growth.

Research indicates average take home income since 2014 has increased slightly in some sectors, while going down in others, but with no noticeable uptick in the cost of basic consumer items (Vigdor et al. 2016, 2017). This may be unique to Seattle, a diverse and competitive economic zone. More local experimentation in the coming years is likely and will provide us with a better understanding of the impact of raising the minimum wage on various sectors of the labor market. While nationally it may be that the Biden administration, which so far has boxed out the more progressive elements of the Democratic coalition, will not prioritize the fight over federal minimum wages, in any event, the public should not be misled into believing that the data unequivocally supports the fight for a fifteen-dollar-an-hour federal minimum wage.

Resources and Works Cited:

Card, D., & Krueger, A. (1993). Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania. doi:10.3386/w4509.

Harris, B., & Kearney, M. (2016, July 29). The "Ripple Effect" of a Minimum Wage Increase on American Workers. Retrieved October 06, 2020, from https://www.brookings.edu/blog/up-front/2014/01/10/the-ripple-effect-of-a-minimum-wage-increase-on-american-workers/

Jardim, E., et al. (2017, June 26). Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle. Retrieved January 05, 2021, from https://www.nber.org/papers/w23532

Krugman, P. (1998, September). The Living Wage. Retrieved October 06, 2020, from http://www.pkarchive.org/cranks/LivingWage.html.

Krugman, P. (2015, July 17). Liberals and Wages. Retrieved October 06, 2020, from https://www.nytimes.com/2015/07/17/opinion/paul-krugman-liberals-and-wages.html

Moore, H. (2014, June 03). Seattle Misreads Thomas Piketty as its Minimum Wage Mascot. Retrieved January 05, 2021, from https://www.theguardian.com/money/us-money-blog/2014/jun/03/thomas-piketty-seattle-minimum-wage-risks-jobs

Neumark, D., Wascher, W. (2007). Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research: Cambridge.

Pollin, R., & Luce, S. (2000). The Living Wage: Building a Fair Economy. New York: New Press.

Reich, R. B. (2017). Saving Capitalism: For the Many, not the Few. London: Icon Books.

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Stiglitz, J. E. (2020). People, Power, and Profits: Progressive Capitalism for an age of Discontent. UK: Penguin Books.

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Why We Think We're Free

01/12/2021Shane J. Coules

There is a famous routine by the late, great American comedian George Carlin in which he talks about why he refuses to vote. In less than four minutes, he brilliantly captures the deep flaws of the US political process, and the futility of a system that has become irredeemably corrupt (“I’m sure as soon as the election’s over your country will improve immediately….This country was bought, sold, and paid for a long time ago”).

Italian-American lecturer and writer Piero Scaruffi opines that “a comedian is someone who tells the truth. Truth is the set of all jokes, told by all comedians in the world.” There is certainly more than an ounce of veracity in Carlin’s bit. But while that may be the case, the idea of abstaining from voting is seen by many as nothing less than the ultimate mark of disrespect to all those people who fought for “freedom” in the statist wars of the twentieth century.

Which prompts the question: What is freedom? Merriam-Webster defines it as “the quality or state of being free, such as…the absence of necessity, coercion, or constraint in choice or action.” If we agree on this definition (and—assuming the individual rights of another aren’t being violated by one’s actions—how could we not?) can we say that the tragic, bloodiest wars in history succeeded in delivering freedom to the citizens of the West?

Invisible force and The Freedom Delusion

Ask most people strolling down a London street, along a New York sidewalk, on the cobblestones of Dublin’s city center, or any other Western nation if they are free, and they will likely reply “yes, of course.” In the New Yorker’s case, he may even snap incredulously that this is the land of the free.

And looking at their surroundings, it may appear that these people are correct. When not in the middle of a pandemic (and the accompanying draconian government measures) they would usually walk around relatively free of physical force from police unless they’re breaking—or suspected of breaking—the law. (And when physical force is used, it is rarely seen as an assault on freedom.) But the apparent absence of physicality does not equate to a lack of coercion or constraint; like the invisible hand that guides the free market, there is an invisible hand of government which quells liberty.

In most if not all Western democracies, this semblance of a free society is in fact a mirage borne of sheer ignorance, effective indoctrination, or a mere misunderstanding of what it means to be free. A nation of denizens who believe they are free without knowing the true meaning of freedom is a nation enrapt in a collective hallucination (or a Bernaysian propagandist trap). This widespread phenomenon can be referred to as the Freedom Delusion.

The “Inviolability” of Democracy

Some argue that the act of voting renders the system “voluntary,” but this is not the case.

To channel Mr. Carlin, those who vote in modern democracies are merely party to a transfer of power from one corrupt or misguided cabal to another (“garbage in, garbage out”). And the vote which people in the West cast every few years is, flagrantly, a vote to empower the winning coalition to attack the individual rights of citizens.

Yet the legitimacy of democracy is almost universally (in the West at least) considered unquestionable, and any criticism of it taboo.

Yet, in practice, Western democracies in their current form amount to the tyranny of the majority, the continual assault on individuals, and the restriction of liberty.

What Genuine Freedom Means

A truly free society allows for some to purchase land and voluntarily attempt a socialist utopia, and for others to purchase land and live in a stateless, free-market, private-law society.

Be it anarcho-capitalism or minarchism, socialism or social democracy, communism or anarcho-syndicalism, or any other social system, genuine freedom in essence means the freedom to choose, so long as no one is compelled to join in. Some may freely choose to enter a “socialist” community and thus voluntarily give up much of their fundamental freedoms, subjugating themselves to the collective; others may freely choose to enter a communal agreement for an anarcho-capitalist society. The Freedom Delusion prevalent in the West today, however, essentially means that these ideas and questions surrounding what it means to be free are rarely—if ever—raised in mainstream debates over what freedom means.

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Wikipedia, Markets, and Collaboration

01/04/2021Gary Galles

Listen to the Audio Mises Wire version of this article.

On January 15, Wikipedia turns 20. Its anniversary is a good time to celebrate the success of a service that has become so useful to so many.

Members of my family, for instance, have undertaken university training in mathematics, economics, accounting, philosophy, English, art history, theology, counseling, women’s studies, education, and digital editing. All of us agree that Wikipedia is valuable. When used sensibly, it can be highly productive, particularly as a place to start learning about a topic.

A good place to see Wikipedia’s usefulness can be seen in its entry on itself. It is a lengthy piece (and recently updated, of course) which clearly strives for balance. My recent search turned up fifty major headings, 365 footnotes, and many references for further study. That it offers such easily accessible information and connections for further investigation has made it the most popular general reference work site on the internet, with 365 million readers, 55 million articles (over 6.2 million in English) in 285 languages, and still growing, and has ranked it among the fifteen most popular websites overall.

While almost everyone I have talked to about Wikipedia has a generally positive view of it, as an economist, I found certain things particularly important. As Wikipedia’s former executive director, Sue Gardner, wrote on its twelfth anniversary:

An encyclopedia is one of humankind’s grandest displays of collaborative effort, and Wikipedia takes that collaboration to new levels.

I don’t know of a comparable effort, a more diverse collection of people coming together, in peace, for a single goal.

Wikipedia has become an indispensable part of the world’s information infrastructure.

Each of these statements draws on something—the degree of collaboration, the extent to which it incorporates diversity, the degree to which it achieves its goal in peace, that it is an indispensable source of information for many—that should remind us that anyone who likes Wikipedia should like markets more, because voluntary exchange in markets is mankind’s most productive collaborative accomplishment.

Wikipedia, with its thousands of contributors and millions of beneficiaries, is still a much smaller demonstration of the beauty of collaboration than we find in the voluntary associations that make up markets. Exchange interactions bring everyone into collaboration, whether they intend to collaborate or not.

In markets, every participant’s preferences and values are incorporated into the results. Everyone who chooses to buy does so voluntarily, reflecting the fact that they place a greater value on what they receive than on what they give up. Everyone who chooses to sell does so voluntarily, reflecting the fact that they, too, place a greater value on what they receive than on what they give up. And those market relationships move goods and services to more highly valued forms, locations, and time periods, as well as to owners who place higher values on them, which are the only changes self-interested parties will mutually agree to. That is a far vaster field of social cooperation than Wikipedia. And everyone who uses the prices that result as information about the tradeoffs others are willing to make—that is, everyone—benefits from it.

Because markets reflect the choices—and therefore the preferences, abilities, and circumstances—of their participants, they also reflect the changes that impact them, communicating that information to others through relative price changes. While Wikipedia is far more nimble than other reference sources when it comes to incorporating new information, markets incorporate vastly greater amounts of useful new information far more quickly.

In fact, as Friedrich Hayek pointed out in “The Use of Knowledge in Society,” markets can incorporate information initially known only to one individual, even if she has no intention of benefiting others by that knowledge. That is because her self-interested market behavior will be reflected in price changes that communicate the consequences of that information, regardless of her intent. And that will allow for its productive use not just in the market where the information makes its initial appearance, but in markets for related products, such as substitutes, substitutes of those substitutes, complements, etc., in an expanding universe of effects.

Further, Wikipedia focuses on presenting facts that can be articulated and whose sources can be traced. But in markets, there is so much more information—including all the details of time and place that can change individual evaluations of goods and services—that it overwhelms our ability to know and process it. Much of that information is transitory and often not even articulable. Markets still incorporate that information by answering the question we are typically most interested in with respect to our productive associations: How much?

How much will someone else give me for something, or how much will someone else demand from me for it? While sparing us from the need to know all the infinitely complex combinations of who, what, when, where, and how, drastically economizing on information costs, it communicates the most essential things we wish to know through prices and changes in them.

When one thinks carefully about the beyond-remarkable feats of social coordination markets make possible, it is not hard to understand why Hayek concluded:

I am convinced that if [the market system] were the result of human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.

Add to these marvels the fact that the market’s amazing feats of cooperation are accomplished in peace. When one’s property rights are well defined and defended, only voluntary arrangements are possible. Or as Leonard Read put it in his most famous book, Anything That’s Peaceful is allowed, but nothing that is not. Force is employed only when necessary to stop those who would violate others’ rights.

Indeed, early leaders of the free trade movement emphasized not just markets’ advantages for society in general, and the poor in particular, but for the advancement of peace. In Richard Cobden’s words:

[We] advocated Free Trade, not merely on account of the material wealth which it would bring to the community, but for the far loftier motive of securing permanent peace [with] people…brought into mutual dependence by the supply of each others’ wants.

The peaceful nature of market interactions is all the more amazing in view of the fact that unlike the shared goals that motivate the writers of a Wikipedia article, markets do not advance a single agreed goal. They vastly expand social cooperation, but that cooperation is in service of individuals’ widely disparate, often conflicting, goals. For example, we all desire food, clothing, and shelter, but we do not want the same amounts or kinds of food, clothing, or shelter, nor do we want them for the same people, at the same time, in the same quality and form, or in the same place. And that holds for innumerable other things.

Markets are not just a far more “indispensable part of the world’s information infrastructure” than Wikipedia, they provide their services under a greater handicap: governments do not constantly attack and undermine the information Wikipedia provides. In contrast, the information infrastructure provided by markets is widely undermined by government through a panoply of intrusions, including price ceilings and floors, taxes and subsidies, protectionism (tariffs, quotas, and nontariff barriers), and regulations that deter entry and stifle innovation.

Wikipedia is an impressive success story. It is informative, collaborative, diverse, and peaceful. But it is not humanity’s greatest collaborative effort, nor its greatest source of useful information. Those arise from the incredible benefits of people’s peaceful, voluntary arrangements in markets, when they are not short-circuited by government interference and hindrances. Consequently, if we could only give voluntary market arrangements the kind of respect and freedom Wikipedia enjoys, it would provide a major step forward for humanity.

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Why "Phishing" Is No Justification for Interventionism

12/18/2020Derek Zweig
In their book Phishing for Phools, Robert Shiller and George Akerlof introduce the idea of a “phish.” They argue that there are legitimate wants/needs and then there are things people don’t actually want but can’t help themselves around (i.e., addiction, present bias, etc.). Phishing is when companies tailor their products/advertising to the latter. Unfortunately, this definition is somewhat vague, being much broader than other definitions of phishing. Cases of fraud seem to be included in the phishing category. Product differentiation via low quality inputs too. As a rule, Shiller and Akerlof conceptualize phishing as a transaction that always benefits the seller, not the buyer.

A primary point of the book is that phishing is an inherent issue of the profit motive. Even in a perfect Pareto equilibrium, phishing can still occur. As economic growth rises and production expands, phishing too may find a larger market. Accordingly, the authors believe phishing is inherent to, and encouraged by, a capitalist system. Phishing is even suggested as an important source of asset price volatility and bubbles. This predictably evolves into a discussion of the role of government in combating phishing.

How do companies phish? Reputation mining for one. Once companies have established a positive brand, they may use their reputation to push subpar products on their consumers. While certainly possible, this marks another point of contention. A brand itself is neither good nor bad. When a brand is associated with a high level of quality or reliability, a loyal consumer base will follow. However, a brand can just as easily be associated with poor quality or reprehensible standards, leading to a consumer base equally committed to avoidance. Why would a company with a good brand, which may take years/decades to establish, purposely soil its reputation with a phish?

This leads naturally to the question: How can one tell the difference between a phish and a legitimate purchase? The reader is left to induce a generalization of phishing from a series of examples. However, many of the seemingly clear-cut cases provided could easily fall under the category of fraud, and the authors make no distinction between paternalism and fraud. As a result, what is considered a nonfraud phish is seemingly defined in line with the authors’ preferences. There is little discussion of scale or use case.

Loosely speaking, anything can be a phish if used in an abusive way or at an inappropriate dosage. The vices of some may be enjoyed in moderation by others. A clean separation of legitimate and illegitimate production is not obvious, and not explicitly addressed by the authors.

Therein lies the vague definition. Everyone defines a phish differently. And since snake oil salesmen are pervasive, consumers become keen to phishing attributes, meaning everyone has developed a unique set of heuristics to avoid them. As the authors acknowledge, consumers are often aware of having been phished. Repetitive purchases, competitive marketing, boycotting, and lawsuits help weed out phishes. So again, will companies really ruin a positive brand for a quick, short-lived buck? Some might, but to say that phishing is an inherent problem with capitalism without acknowledging the plethora of ways the system deals with it is at least one sided.

Not that people never make suboptimal decisions (as with, say, addiction), but the proposal that leaders can dynamically determine what’s ideal for heterogeneous subgroups and enact locally optimal paternalistic solutions, is optimistic. By the authors’ own admission, legislation has failed to eliminate phishes even in highly regulated industries, and it may even be the source of phishes in cases of regulatory capture or incompetence. I could be convinced that there are special cases that are more clear cut, but as a universal problem I find phishing trivial.

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