Power & Market
Being a government agency means never having to say your sorry. With last Saturday's botched warning over an alleged ballistic missile hurtling toward Hawaii, we're unlikely to see much beyong a call for more government funding.
Justin Raimondo writes:
While the population of Hawaii dove under manhole covers, and #TheResistance screeched that The Orange Monster had finally done it and forced Kim Jong Un to nuke the island paradise, it took Rep. Tulsi Gabbard, the levelheaded, and quite personable representative from that state, to issue a statement countermanding the “take cover” message sent out by the military earlier.
Rep. Gabbard did this within minutes, thus avoiding a major panic with potentially dangerous consequences, while the Authorities took nearly an hour to issue a retraction.
How did this happen? The Official Story is that “someone pushed the wrong button.” As to the identity of this Someone, or the consequences that have befallen him or her, we hear nary a word.
This bizarre incident underscores the utter absurdity and darkness of the permanent state of emergency which we live under. For it turns out that there was no system in place capable of countermanding the emergency alert once it went out. A tacit understanding of the reality behind our military strategy: it’s a suicide pact.
It also underscores the Potemkin Village aura of what is routinely referred to as our National Security Establishment: in this case, it amounted to some guy in Hawaii wearing flip flops and all too eager to go off duty and get back in the water after going through the unending drill he’d complete hundreds, probably thousands of times before.
So who was the culprit, and what happened to him? The Hawaii authorities refuse to identify him – because “he would be a pariah.” Which is a military disciplinary system that has to be unique in all the world. The administrator in chief of the system, a Mr. Miyagi, explained it this way:
“Looking at the nature and cause of the error that led to those events, the deeper problem is not that someone made a mistake; it is that we made it too easy for a simple mistake to have very serious consequences. The system should have been more robust, and I will not let an individual pay for a systemic problem.”
What about the individual architects of the system? You can be your bottom dollar none of them will bear any consequences for almost starting World War III. Gee, I recall an incident that occurred on September 11, 2001, in which the “defenses” we’d spent billions on simply did not function and thousands died as a result – and not a single person was fired.
Grotesque displays of incompetence happen in every sort of organization every now and then, but only in government is there never any cut to a budget, and never is any (important) person fired. Usually, the offending government department claims they need more money, and then they get it. Government agencies are also the most prominent home of the fake version of "taking responsibility." This occurs when someone goes on TV and announces "I take full responsibility." This is followed, however, by no sanction. No one takes a pay cut or is fired, and the agency in question sees no significant cuts. "Taking full responsibility" in government means taking bad press for a few days. It never means losing out on even one dime of taxpayer money being sent to the "responsible" party's enormous federal pension.
Note also that the false alarm in Hawaii that caused panic has not been followed by any information about what should actually do in case of nuclear attack. The reason for this, of course, is that once the missile strikes, there really is nothing to do. "Civil Defense" against nuclear war — such as all those "duck and cover" drills gullible children and parents used to tolerate — has always been mostly for show.
Leonard Read, founder, leader and long-time heart and soul of the Foundation for Economic Education, and one of liberty’s most insightful adherents, took seriously his belief that the purpose of one’s life was to grow. He sought out sources of light, wherever he could find them, and incorporated them into his thoughts.
Those familiar with Read, whose works are now easily available online, know that he peppered quotations throughout his work. Those quotations provide us an added window into his thoughts. The person Read quoted most frequently in his books was Edmund Burke, which reveals a great deal about Read. In How Do We Know?, Read said “I am often criticized — in a friendly way — for so copiously quoting those whose wisdom is far superior to mine, Edmund Burke, for instance…why not share the wisdom of seers—those who have seen what most of us have not—with freedom aspirants!”
So as we mark Burke’s January 12 birthday, consider some of the words that inspired Leonard Read to cite Burke so copiously:
He who profits of a superior understanding, raises his power to a level with the height of the superior understanding he unites with.
How often has public calamity been arrested on the very brink of ruin, by the seasonable energy of a single man? Have we no such man amongst us? I am as sure as I am of my being, that one vigorous mind without office, without situation, without public function of any kind, I say, one such man, confiding in the aid of God, and full of just reliance in his own fortitude, vigor, enterprise, and perseverance, would first draw to him some few like himself, and then that multitudes, hardly thought to be in existence, would appear and troop about him.
No government ought to exist for the purpose of checking the prosperity of its people or to allow such a principle in its policy.
It is a general error to suppose the loudest complainers for the public to be the most anxious for its welfare.
It is not only our duty to make the right known, but to make it prevalent.
I hope to see the surest of all reforms, perhaps the only sure reform—the ceasing to do ill.
Example is the school of mankind. They will learn at no other.
But his unbiased opinion, his mature judgment, his enlightened conscience, [your representative] ought not to sacrifice to you, to any man, or to any set of men living…They are a trust from Providence, for the abuse of which he is deeply answerable. Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.
The only thing necessary for the triumph of evil is for good men to do nothing.
Whenever a separation is made between liberty and justice, neither…is safe.
Power gradually extirpates from the mind every human and gentle virtue.
Whatever each man can separately do, without trespassing on the rights of others, he has a right to do for himself.
All men have equal rights, but not to equal things.
The great difference between the real statesman and the pretender is, that one sees into the future, while the other regards only the present; the one lives by the day and acts on expediency; the other acts on enduring principles and for immortality.
Depend upon it, the lovers of freedom will be free.
Men are qualified for civil liberty in exact proportion to their disposition to put moral chains upon their own appetites; in proportion as their love of justice is above their rapacity; in proportion as their soundness and sobriety is above their vanity and presumption; in proportion as they are more disposed to listen to the counsels of the wise and good, in preference to the flattery of knaves. Society cannot exist unless a controlling power upon will and appetite be placed somewhere; and the less of it there is within, the more there must be without. It is ordained in the eternal constitution of things, that men of intemperate minds cannot be free. Their passions forge their fetters.
The greater the power, the more dangerous the abuse.
Tell me what are the prevailing sentiments that occupy the minds of your young men and I will tell you what is to be the character of the next generation.
Having looked to government for bread, on the very first scarcity they will turn and bite the hand that fed them.
The people never give up their liberties but under some delusion.
All who have ever written on government are unanimous that among a people generally corrupt liberty cannot long exist.
If circumspection and caution are a part of wisdom, when we work only upon inanimate matter, surely they become a part of duty too, when the subject of our demolition and construction is not brick and timber, but sentient beings, by the sudden alteration of whose state, condition and habits, multitudes may be rendered miserable…the true law-giver ought to have an heart full of sensibility. He ought to love and respect his kind, and to fear himself.
Leonard Read quoted Edmund Burke in roughly two-thirds of his books. And when you consider those quotes in connection to Read’s work, you can see why Read held Burke in such high esteem and echoed so many of his views.
In The Path of Duty, Read commented on Burke’s views of the American experiment in liberty — “He was sympathetic to and promotive of the American colonies and had no hesitancy in proclaiming his position. Stalwart! He was blest with foresight, seeing into the future: America, home of the free and land of the brave! Here was found the purest practice of freedom in world history, and Burke’s support was based on ‘enduring principles and for immortality.’ In my reading of history, never before or since his time has there been a greater statesman.” In The Freedom Freeway, Read wrote “Edmund Burke has put the solution for disunion better than anyone known to me.”
In 2015, the federal government (namely, the FCC) implemented new monopolistic regulations which it called "net neutrality." In 2017, the FCC then repealed some of these regulations. In the weeks and months preceding the repeal, various billionaires and other leftists hysterically predicted that the end of net neutrality would usher in a dystopia in which only the super rich could access the internet.
What they were really opposing, of course, was a return to the internet's status quo of 2015. And we all know what a living nighmare that was!
In reality, of course, internet access has grown continually over the past two decades in the absence of net neutrality, and has now become commonplace. Like most technologies, public access to this "luxury" has only grown over time.
This is how markets work, as Ludwig von Mises pointed out:
Thirty-five years ago there were no automobiles; twenty years ago the possession of such a vehicle was the sign of a particularly luxurious mode of living; today in the United States even the worker has his Ford. This is the course of economic history. The luxury of today is the necessity of tomorrow. Every advance first comes into being as the luxury of a few rich people, only to become, after a time, the indispensable necessity taken for granted by everyone. Luxury consumption provides industry with the stimulus to discover and introduce new, things. It is one of the dynamic factors in our economy. To it we owe the progressive innovations by which the standard of living of all strata of the population has been gradually raised.
In a recent column for Forbes, John Tamny takes note of this reality, examining how the left's alarmism over net neutrality has no basis in the actual experience of the marketplace:
In 2006 Ford Motor Company discontinued its Ford Taurus. At the time Saturday Night Live’s comedy writers described the Taurus (this is a slight paraphrase) as “the car for people who’ve given up." Eventually Ford brought back the automobile associated with average. Interesting there is that a $31,000 2018 Taurus has 4-wheel ABS, dual front side mounted airbags, front and rear head airbags, dusk-sensing headlights, a blind spot warning accident avoidance system, rear parking sensors and a rear-backup camera (to avoid dings), and a heated steering wheel. Electric seats are a given.
Back in 2006, only the higher-end suites at the Four Seasons in Austin, TX (the city's most luxurious hotel) had flat-screen televisions. The regular rooms still had the box-shaped version. But by 2015 flat-screen tvs were standard not just in rooms at the Four Seasons, but also in most any Motel 6.
Air travel? Those rich enough to fly used to travel with flip flops, but only in their bags. They dressed up for what was a rare luxury. Nowadays people walk on to planes in flip flops, shorts, tank tops, and other garments associated with highly casual dress. Flying is what we all do now.
All of this is a reminder of what readers of this column know well: “luxury” is an ephemeral concept. Today’s obscure bauble of the superrich is tomorrow’s common good. In a growing economy prices are falling all the time. They are because investment is the driver of growth, and investment is all about producing more for less.
What's also crucial when it comes to falling prices is the “venture buyer.” And while the truth about “venture buyers” may cause the heads of the overly sensitive to explode, venture buyers are rich. Often wildly rich. So rich that they can spend enormous sums on goods and services that aren’t broadly used, or understood. These buyers are crucial to progress because they can uniquely test the products put on the market by entrepreneurs and businesses. If they prove useful, great. If they’re duds, the rich are out substantial sums. That’s ok. Figure that they’re superrich.
Still, the goods and services deemed worthy by venture buyers act as a signal to the entrepreneurs and businesses, and the signal is clear: the innovators capable of mass-producing what superrich venture buyers uniquely enjoy will similarly become superrich themselves. There. It’s been said. Great wealth, the kind of wealth that causes inequality to soar, is frequently a function of entrepreneurs democratizing access to the goods and services formerly enjoyed by the rich alone.
There is no reason whatsoever to believe that access to the internet is going to diminish in the absence of a 2-year-old regulation that has been recently repealed. Experience suggests exactly the opposite.
Coinbase, the cryptocurrency trading platform, has been ordered by a federal court to turn over information sought by the IRS relating to more than 14,000 of the site's users. As TechCrunch puts it, the IRS noticed "the number of tax returns claiming gains from virtual currency didn't line up with the emerging popularity of digital currencies like bitcoin as an investment vehicle."
This may be a gross understatement, considering fewer than 1000 US taxpayers reported gains on cryptos to the IRS in recent years. If this statistic is believable, 2% of Americans-- 6 million people-- owned bitcoin way back in 2014. Surely the number must be much higher today. Either they're all buying and holding, or they're not informing Uncle Sam about it. And of course this was one of the great promises of the crypto revolution, perhaps the greatest promise: the ability to transact business away from the prying (and taxing) grasp of governments.
In 2014 the IRS attempted to throw cold water on the party, announcing it would tax cryptocurrencies as "property" (i.e. like stocks or real estate) rather than currency. Bitcoin henceforth would be treated as an investment generating capital gains or losses for most taxpayers.
The effect of this rule would be disastrous for the evolution of cryptos into actual widely-used currencies: taxpayers would need to track the tax basis of their bitcoin just like stocks, but more importantly would have to treat every purchase of a sandwich at Starbucks as a taxable event--i.e. a "sale" of property. Netting out annual gains and losses and tracking every purchase made with cryptos might be a boon to tax preparers, but it's a serious blow for a technology aimed at creating private money.
So far the IRS guidance hasn't mattered much to crypto fans, who in fact buy bitcoin primarily as an investment rather than a currency exchange. And the bigger question of whether the IRS can effectively enforce its rule remains unanswered. But a few newsworthy criminal prosecutions of large bitcoin users who fail to report their activity to the IRS could have a quick chilling effect. At the very least smaller users might get very nervous about using platforms like Coinbase rather than private wallets.
Governments hate privacy, hence the war on cash and their rabid preoccupation with foreign bank accounts. Politicians know they don't like bitcoin, but they haven't figured out what to do about it. In fact, Congress has passed no legislation* specifically addressing cryptocurrencies-- all action has been taken unilaterally by administrative agencies (in particular the IRS and SEC). As a result cryptos have enjoyed a honeymoon period, much like Uber in its early days. Whether this happy interlude can last may depend on whether opponents can frame bitcoin as a sinister tax dodge for drug dealer and the 1% tech cognoscenti.
Cryptocurrencies can fulfill their great promise only if they become truly private money: unregulated, untaxed, un-banked, untraceable, and 100% peer-to-peer. In the meantime, the Feds may treat big bitcoin users like Al Capone and go after them for tax evasion.
*Legislation has been introduced, though it's a long way from passing, that would validate the legality of cryptocurrencies. The potential Trojan Horse, however, is a set of anti- money laundering and drug trafficking provisions.
Apparently, South African Airways is "on the verge of bankruptcy" and is, according to the BBC, "haemorrhaging cash." Unfortunately for South African taxpayers, SAA is also a state-owned operation, it's deeply in debt, and it may not be able to make payroll in the near future.
Clearly, there's a problem.
James Peron, writing at South Africa's Business Day suggests Ludwig von Mises may have the answer:
The mess that is South African Airways (SAA) is widely known today. What many do not realise is that in 1944, Yale University published a book that laid out the reasons for the mess.
While it is true that Ludwig von Mises’s Bureaucracy does not mention SAA by name, it does dissect the differences between "profit management" and "bureaucratic (or political) management".
Mises argues that under each system of management, there exist incentives. Managers and/or owners respond to those incentives.
Transfer the bureaucrat to a system of "profit management" and his actions will change. Put a businessman in charge of a bureaucratic system of governance and he will act like all the bureaucrats before him. Change the incentives and you change the response.
The key word here, when it comes to incentives is "political." It's not the fact that SAA has a bureaucratic structure. Most large organizations do. The difference between SAA and a private organization is that profit is not the primary motivation — because bailouts and other political solutions can substitute for serving customers in the marketplace. IF SAA ceases to make a profit, as is already the case, it seems, it will continue to exist so long as government agents see fit to continue subsidizing it. In a truly private market, of course, an organization that fails to make a profit — regardless of how "bureaucratic" it is — ceases to exist.
Apologies for the pay-walled link, but this Wall Street Journal article documenting the cheery fortunes of the Swiss National Bank really is remarkable. It's remarkable not only because the SNB actively chose to pour hundreds of billions of Francs into foreign stock purchases, or because currency devaluation remains a cornerstone of Swiss monetary policy (hasn't the fetish for exports been conclusively debunked?). What is most remarkable is the Journal's blasé attitude about the whole thing: nothing new to see here, folks. Of course central banks own stocks, why it's the current year!
The SNB’s profit was lifted by a trio of positive forces: low bond yields preserved the value of its foreign bonds; higher equity prices raised the value of SNB holdings that included $2.8 billion in Apple stock at the middle of 2017 and $1.3 billion in Facebook Inc. and the weaker Swiss currency made those foreign assets worth more in franc terms. For the first nine months of 2017, the SNB’s profit was 33.7 billion francs. Of that, over 14 billion francs was from rising equity prices and another 10.5 billion francs came from the valuation effects of the weaker franc, which fell around 5% against the euro last quarter.
Not a bad paper gain for a nation of only 8.5 million people. But the rumor is stocks sometimes actually go down, while gold and cows and fine watches and chocolate have a slightly more enduring Swiss feel to them.
The SNB of course merely followed in the footsteps of the Bank of Japan and other central banks which own equities. And the ECB continues to flirt with the idea. But if the notion of central banks "embracing risk" and seeking returns sounds like moral hazard writ large to you, you're not thinking like a banker: large piles of reserves just laying around demand some kind of yield!
Is it really so far-fetched to imagine the Fed snapping up FAANG shares to prop up the NASDAQ during a rough patch? Or simply buying equities and corporate bonds generally, across the board, in the event of an economic downturn? It's an idea Janet Yellen already floated at the Fed's annual Jackson Hole meeting last year. It would require legislation (US law currently forbids the Fed from buying stocks), but given how obliging Congress was during the 2008 Crash it's hard to imagine much resistance the next time Wall Street gets shaky.
At this point can anyone still argue with a straight fact that the Fed exists as the "banker's bank," a neutral referee in financial markets and a lender of last resort?