Power & Market

Do You Want to Whip Inflation Now? Kill Bill Gates (Just Kidding)

By “kill,” I don’t mean murder. For this to work, you need to execute him for some “crime” and as the result of some “legal” process. 

And by “Bill Gates,” I don’t mean him, as any sufficiently-wealthy and high-profile victim will do.

If you accept the proposition that inflation is the result of too much money, then you must admit that defeating inflation means that we need to shrink the money supply. Traditionally, the central bank has raised interest rates in order to reduce the supply of credit in the economy, thereby shrinking the money supply, but terror would work just as well – maybe even better.

That is, if the government started executing rich people for their “crimes,” then rich people would stop lending. And, as long as you limited your random killings to people who had perpetrated some well-defined and easily-definable act, the general economy wouldn’t need to suffer (very much). After all, what do I – or any other small business person – care if the government executes rich people who donate billions to vaccines (or some other highly-specific crime)? I can, in this scenario, become as rich as I like, as long as I don’t devote my wealth to similar charities.

And, even if there is some over deterrence, we’ve only deterred charitable activities, not business activities. 

If all of this strikes you as abhorrent, good – you’re a decent human being, but a terrible politician. The easiest way to profit from inflation as a politician is to define your enemies in such a way that you can strip them of their wealth – and, potentially, their lives – without endangering anyone else. If, say, you declare all Trump supporters to be enemies of the state, then you can kill them quite legally without terrifying anybody else.

Of course, the problem with Trump supporters is that they aren’t particularly wealthy, and they’re hard to define in a way that others wouldn’t be afraid that they might be next, so you’d have to kill a bunch of them in order to make any real headway in shrinking the money supply, and the unintended consequences would be extreme. If, however, you could identify a group of extremely wealthy people who share the same political ideology…an ideology you could vilify in order to justify your ascent to power… then you’re in business!

And, of course, once you’re in power, the resulting economic boom is likely to keep you there. (Not to mention the fact that redistributing their wealth is likely to earn you a great deal of loyalty.)

In short, inflation isn’t likely to destroy the value of government fiat currency, but it is likely to destroy the value of the government that issues it. Inflation creates an economic incentive – aka a political opportunity – for unscrupulous people to solve inflation via violence, and, if economics teaches us anything, it’s that few opportunities are wasted.

One does not have to believe that Bill Gates – or anyone else – deserves to be killed in order to warn against creating incentives to kill Bill Gates. To the contrary, it’s quite reasonable to believe that we need absolute prohibitions on certain governmental actions precisely because those actions lead to disaster. Like fiat currencies. 

One of the great, and underestimated, advantages of the gold standard (or any other form of sound money) is that killing the king does not affect his pile of gold, thereby greatly reducing anyone’s incentive to kill the king. In contrast, fiat money means that the value of the king’s life is inextricably intertwined with the value of the king’s money, which is awfully dangerous for the king and his supporters. 

Humanity’s capacity for political violence is unlimited, but that’s no excuse for facilitating and incentivizing our worst impulses through fiat currency. If anyone should recognize the importance of operating systems, it would be Bill Gates, and fiat currency is a very dangerous operating system indeed.

As believers in the subjective value of assets, we students of the Austrian school should never cease to warn others of the dangers inherent to granting the government a monopoly on an asset as important as money; namely, that violence is one of the most effective means to change subjective valuations ever invented. If anyone should be entrusted with the power to create assets, it shouldn’t be an institution that also entrusted with a monopoly on lawful violence as the temptation to use the one monopoly to alter the valuations in the other is too great for any mortal. Even Sauron, after all, didn’t claim a monopoly on magical rings. 

Combining such monopolies into one, therefore, is the height of folly.

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Democracy in Action

03/04/2022

Democracy is held as the apotheosis of governance, the pinnacle of societal organization that replaced a long succession of failed predecessors (monarchy, oligarchies, dictatorships, etc). Its sine qua non is the peaceful exercise of power and authority. But that peaceful guise is an illusion. Those who submit to the majority’s wishes do so not out of a noble love for democracy, but rather out of fear of its enforcement. Democracy, after you strip away all the slogans and grade-school platitudes, is a proxy for violence. 

When a country wages war against another (Russia vs Ukraine) this is democratic enforcement in action. Consider: Russia aggressively occupying Ukraine is no different than a newly elected political regime imposing its intentions upon resistant members of a populace who did not vote for them or who didn’t vote at all (a null vote being a vote against all candidates). Happens all the time. Don’t pay your taxes, sell products that are “illegal”, fail to close your business when ordered to do so – in comes the fully armed SWAT team, guns drawn. Those decrying Russia’s actions in Ukraine would nod approvingly had there been an election in Ukraine and Russia and the losing side just happened to be everyone in Ukraine (not too dissimilar to every US presidential election). Internalized violence against one’s own citizens (no offense Canada) is laudatory under democratic regimes. Externalized violence against another country’s citizens is condemned vociferously. There is no difference other than the existence of imaginary lines.

To be clear, the point here is not to suggest that one country invading another is “ok”. Quite the contrary. Aggression is reprehensible. Just as reprehensible as the mob rule otherwise known as “democracy.” Democracy is the veneer of civility that conceals the sociopath’s instinct to rule (libido dominandi). When the ruled resist, the veneer cracks, and the aggressive nature of the presumptive rulers is revealed. 

Should we then, as outsiders, get involved in the Russia-Ukraine conflict? Quite simply, “no.” Not because it’s tolerable for bullies to get away with naked aggression, but rather because there is no “we” here. There is no United States. There is no Germany. There is no Canada. Only people. To say that “we” should intervene on behalf of Ukraine is to say that if your neighbor gets involved in a bar fight you should order your children to intercede. This is absurd. If YOU want to help then YOU are free to get on a plane and take up arms in Ukraine. Likewise you are free to welcome Ukrainian refugees into your home. However, you have no moral authority to compel anyone else to engage in these actions. This applies to sanctions as well. Sanctions are not “peaceful”. They are an act of war, and a stupid one at that. They never harm the leaders. They only harm third parties on both sides (to whit: Italy and Belgium are asking that proposed Russian sanctions not include luxury goods as it would harm their respective economies). US sanctions killed a million Iraqi children in the 1990s. Former Secretary of State Madeline Albright thought it was “worth it.” Tell me how that is not an act of war (and a hideous one at that)? Sanctions presuppose a paternalistic mindset on the part of a country’s rulers, as though harming citizens is like harming their children. They are not their children. They do not care. Sanctions always miss the mark. They punish the individual who has no power or culpability while those responsible easily work around it with their connections.

So what should be done? A good start would be dismantling NATO. The impending admission of Ukraine into NATO is Putin’s issue. This should not be surprising given the repeated broken promises of Bush, Clinton, Bush, and Obama to halt the eastward expansion of NATO. Had Soviet leaders promised stop the expansion of the Warsaw Pact in South America but instead allowed it to slowly creep over the decades up through Latin America and today Mexico was poised to join, does anyone honestly believe American leaders would not feel a demilitarization of Mexico was warranted? 

NATO is an anachronism that serves no purpose other than to antagonize Russia and increase the odds of pulling the world into WWWIII (given NATO’s WWI-style defense pact wherein an attack on one member is considered an attack on all). Its entire mission is bellicose, in contrast to the UN (of which Russia is a member) whose mandate is one of only peace. Dissolving NATO or at a minimum renouncing any possibility of Ukrainian membership would undermine any pretext Putin has for continuing this current conflict. Or perhaps reconsider what a newly elected Putin suggested back in 2000 – Russia joins NATO. 

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Do We Really Need Big Corporations?

01/23/2022Hunter Hastings

Big Tech. Big Pharma. Big food. Big banks. Big oil. We’ve got questions about all of them. Big Tech is surveilling us and stealing our privacy. Big Pharma is exploiting us and poisoning us. Big food is compromising our health and fitness. Big banks are destabilizing boom-and-bust machines. Big oil is destroying the planet.

Do we need them? In the past, they were necessary to tackle problems of scale—the accumulation and control of sufficient capital to undertake massive industrial-era projects like building railroads, oil fields, pipelines, energy grids, fleets of oceangoing ships or airplanes, and supplying every household in America with 1.88 vehicles.

These achievements—and many, many more—have delivered tremendous benefits and improvements in productivity and in the quality of life. They’ve opened up the globe to trade and eliminated most poverty. They were part of what Professor Deirdre McCloskey calls the Great Enrichment, the flowering of opportunity and economic growth since the nineteenth century that is unparalleled in human history.

But capital accumulation is not needed in the same way in the digital age as in the industrial age. To a large degree, scale can be downloaded from the internet and capital can be controlled by renting it by the minute. Amazon Web Services (AWS) is the epitome of capital rental. Companies don’t need their own server farms and specialized software to run their digital operations—they rent from AWS. Their storefronts, fulfillment, and customer service run on AWS.

According to Wikipedia, as of 2021, AWS comprises over two hundred products and services including computing, storage, networking, database, analytics, application services, deployment, management, machine learning, mobile, developer tools, RobOps, and tools for the Internet of Things.

As an even more specific example of distributed control over capital, consider AWS Ground Station. Do you need satellite capability to collect data? Check the website:

AWS Ground Station is a fully managed service that lets you control satellite communications, process data, and scale your operations without having to worry about building or managing your own ground station infrastructure. 

…. you can use Amazon S3 to store the downloaded data, Amazon Kinesis Data Streams for managing data ingestion from satellites, and Amazon SageMaker for building custom machine learning applications that apply to your data sets. You can save up to 80% on the cost of your ground station operations by paying only for the actual antenna time used, and relying on the global footprint of ground stations to download data when and where you need it. There are no long-term commitments, and you gain the ability to rapidly scale your satellite communications on-demand when your business needs it.

This is the new age: capital on demand. Who needs big corporations?

This realization frees some brain capacity to think about some of the bad things that come with big corporations. There are plenty.

Bureaucracy

We want our corporations to create value, and to improve people’s lives through innovation and service. Parts of them do. But those parts are surrounded by, and sometimes suffocated by, bureaucracy. Bureaucracy was developed by corporations not for purposes of innovation, but for the opposite. It’s an engine of control, to limit the autonomy and creativity of people who work in the corporation and to impose rules, guidelines, methods, and processes. Compliance is a big word for corporate bureaucracies. 

Loss of Speed

Big corporations are structured. They have hierarchies and layers, divisions, functional departments, regions, and subsidiaries. Structure is the enemy of speed. When any individual or team has to seek approval, ask for funding, submit for compliance, and check for authority before acting, time is used and wasted. Speed of action and speed of responsiveness to marketplace and competitive changes are imperative in the digital era. Losing speed is losing productivity. It’s a loss imposed on the firm and the economy. 

Regulation

Big corporations attract regulation, and in many cases initiate it. It’s called crony capitalism. By agreeing with government how to regulate their industry, corporations achieve three things: (1) a known environment in which to operate (the opposite of systems innovation); (2) employment for an expanding bureaucracy (big banks, for example, have huge compliance bureaucracies); and, consequently, (3) competitive insulation, since smaller entities can’t afford to divert resources into their own compliance bureaucracies. 

Regulation, of course, is a huge drain on productivity and a huge barrier to innovation. It’s one of the major ways government undermines the economy, and big corporations are complicit.

Financial Engineering

The creation, maintenance, and profitability of big corporations often have more to do with financial engineering than serving customers and innovating. Financial engineering includes all activities that appear to strengthen financial reporting on paper without improving customer value. Stock buybacks are a perfect example. There is no customer purpose in stock buybacks. The activity is purely for changing pro forma “per share” ratios. The same is often true for mergers and acquisitions—most acquisitions do not improve customer value because they are not executed with customers in mind.

Generally, the financial-engineering mentality of today’s big corporation is not customer favorable.

Defensiveness

Once corporations get big, they have something to defend: their size (investors insist they must grow), their revenues (the top line, as it is called, must slope upward), their market share (they must not “lose” share), and their influence (more lobbyists). Their focus is diverted from innovation and improved customer service to maintenance and “sustainability.” Defensiveness does not generate growth.

Contracapitalist

Big corporations are not anticapitalist. But they often get capitalism a bad name. Robert Bradley Jr. created the term contracapitalist when describing the corporate behavior of Enron (for whom he once worked). This company abandoned and subverted capitalist practices, often with the support of institutions like the Ex-Im Bank, and mostly stayed within the law. Freewheeling accounting practices, contorted debt structures, hyped projections, and hubristic imprudence all contributed to Bradley’s realization that his former employer practiced contracapitalism. 

Do we need big corporations in the interconnected digital era of distributed control over capital? Not really. We should certainly never use big corporations as good examples of capitalism and free markets; they are far too often contracapitalist.

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Does the Fed Need More Progressives?

10/11/2021Robert Aro

The Federal Reserve System will need people to fill the gap left by the retirement of the regional presidents for Dallas and Boston, both stepping down after public disclosure of trading activities. Fed vice chair Richard Clarida is also under scrutiny over several millions of dollars' worth of trades. The Fed could be hiring, or promoting people, in the not-too-distant future.

If past experience is an indication of future outcomes, then someone who doesn’t ask too many questions, yet has an interest in climate change, could be a good candidate. The name that keeps coming up in news headlines looks to be Fed governor Lael Brainard. CNBC reports:

Federal Reserve Governor Lael Brainard's increased influence ahead likely means substantial changes and challenges for the nation’s banking system.

Considered a progressive who favors tighter reins on financial institutions, particularly the Wall Street powerhouses …

Progressive. Much like someone calling themselves a liberal, or socialist, a progressive is one of those self-identifiers that can include a long range of beliefs, many or most of them requiring the threat of violence, theft, or coercion.

The article supports the idea of a Federal Reserve looking for such traits. Ed Yardeni from the research firm which bears his name speaks of Brainard as someone who can move up even higher in the ranks at the Fed:

Everybody can see that the Fed has been moving toward a more progressive stance, and it wouldn’t be a big shock to see that she gets more power either as Fed chair or as vice chair for regulation.

Since it’s not enough to set a nation’s monetary policy, the Fed also monitors and directs the entire US banking system. As Yardeni explains:

To the extent that the Fed’s always more focused on monetary policy than regulation, now one of its new mandates from the progressives is to pay more attention to regulating the banks.

All this talk about being progressive, yet no one has explained where these ideas come from nor where they lead. They might sound progressive to voters and the public at large, but very rarely is it explained how this ideology is beneficial.

Here’s an example of this in action. A few days ago Lael Brainard gave a speech on climate change. She noted that:

Current voluntary climate-related disclosures are an important first step in closing data gaps, but they are prone to inconsistent quality and incompleteness. 

Sounds reasonable. Should a financial institution or any other company voluntarily wish to partake in climate-related disclosures or calculations, there’s certainly nothing wrong with this.

But now, let’s see the progressive in action. Notice the key word as she continues:

Consistent, comparable, and, ultimately, mandatory disclosures are likely to be vital to enable market participants to measure, monitor, and manage climate risks on a consistent basis across firms.

Mandatory. This is the tool of the progressive, the socialist, the liberal, and many of those considered to be on the left or right; the state can impose actions which are mandatory, or forced on whomever it pleases.

The affairs at the Fed have yet to be sorted. But one thing is clear. No matter the name of the ideology, it will limit individual freedom and support the collective, operating under the pretense that it is for the greater good, but in reality is beneficial for only those at the top. From the Fed chair on down, this is the way of the state.

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Debunking the Tulip Bubble

What asset price bubbles are is fairly uncontroversial, even if a fast and hard definition is elusive. At their most basic, bubbles are said to exist when a sharp upward departure in the price of an asset, from its historic or otherwise reasonably expected value, occurs over a relatively brief period of time, however defined. These dramatic, often parabolic, rises can be driven by rushes into new sectors, like dotcoms, new tech, or cryptocurrencies—while some economists consider their occurrence completely random.

Whatever the case, it almost invariably happens that when talking of bubbles in this or that asset class someone brings up the Dutch tulip bubble. Despite its predictable regularity, a closer look at what occurred in Holland around the mid-1630s casts serious doubt on the comparison, for, as will be outlined, the sudden brief spike in the prices of certain tulips wasn’t due to any change in the underlying assets, emergence of new assets, or the preferences of buyers, but rather innovations in how tulips were briefly bought and sold.

By the seventeenth century Holland was the most advanced economy in Europe, with a recognizable and relatively sophisticated stock market. In 1602, for example, the Dutch East India Company was founded as a joint stock company, generally recognized as the first of its kind. As for tulips, they had begun to make their way to Europe via trade with the Ottoman Empire a century prior. As it happened, women’s fashion by the early seventeenth century had come to incorporate flowers, tulips specifically. Even more specifically, certain tulips, called “broken bulbs,” were highly sought after and came to command hundreds, even thousands of guilders each from European elites.1

The tulip market in 1630s Holland, then, was multitiered, with select broken bulbs being traded for many hundreds, even thousands, of times the value of ordinary tulip bulbs—until, that is, the two months spanning late 1636 and early 1637, which saw twenty- to thirtyfold increases in the price of standard tulips, which had traded weeks before at the equivalent of tenths of a cent per handful.

Let’s take a closer look at the mechanics that caused this to happen, and see why there is little to nothing to be gained by comparing what happened during “tulipmania” to asset price bubbles in the modern context.

As already stated, the Dutch stock market was the most sophisticated in Europe in the mid-seventeenth century, and already had a brisk futures trade. Similar to today’s futures trading, most Dutch traders at the time weren’t actually interested in owning the underlying asset. Rather, it was a simple bet on the future price of the asset. If the price went down, the seller got paid the difference, and vice versa for the buyer of the future if the prices went up.

Importantly, because of moral strictures much of this futures trading was done informally—contracting to sell something you didn’t yet own seeming an activity close to, if not indistinguishable from, gambling. And it was in late 1636 that informal futures markets for standard tulips began sprouting up. Because it was outside the existing market framework, these informal markets had their own rules but no real means of enforcing them; and it is here, in the structure and rules governing these emerging tulip futures markets, that we find the origins of the actual bubble of tulipmania.

First, everyone involved had to bid on every lot of tulips; second, new buyers were prohibited from immediately selling; third, all buying was fractional, with only one-fortieth of the price of the contract due down; fourth, there was a maximum cap of three guilders down, no matter how large the contract; and finally, while social exclusion would follow for anyone who reneged on what they owed, the contracts were technically unenforceable in Holland’s courts.

Reading over these conditions, it isn’t difficult to imagine how a bunch of bored Dutch traders with little else to do in the middle of a northern European winter, blew up and then popped an enormous bubble in the lower-tiered tulip market in just a few weeks: contracts were cheap; you might make some money; and if things somehow got out of hand, the contracts weren’t enforceable, anyway. Of course, no one wanted to have their name come under opprobrium, which is why virtually no one apparently reneged—at least at first. It also helps to explain why the bubble burst so quickly after forming. A lot of standard tulip bulbs worth only a guilder or two per bucketful quickly rose to hundreds of guilders in value. This was a huge sum, and no one wanted to risk being on the end of it.

Recognizing the mess they’d gotten themselves in, virtually everyone involved agreed to rip up the contracts and walk away. No damage was done to the Dutch economy, the price of ordinary tulips almost immediately returned to what it had been, and the value of high-tier broken bulbs, like the Semper Augusta continued to steadily appreciate.2

In short, the Dutch tulip bubble, or tulipmania, had virtually nothing in common with modern bubbles, though it is an interesting episode of economic history to be sure.

  • 1. Unlike ordinary tulips, which are a single color—typically red, yellow, or pink—broken bulbs produce a range of multicolored, distinctly patterned petals. Smaller, slower-growing, and rare, botanists now know the flowers were actually infected with a mosaic virus, which stunted their growth and caused the erratic coloring.
  • 2. And this is a key part of the story, for while the tulip bubble is generally said to have occurred between 1633 and 1637, this claim is contradicted by both Peter Gerber and Connel Fullenkamp, economists who have gone back and searched for tulip sales made in the years preceding and following that period. Their research and writings reveal that broken bulbs had been seeing a steady, almost 10 percent rise in value for at least a decade prior. To take just one example, as early as 1626 a single broken bulb had sold for just over two thousand guilders (the equivalent of around a half million dollars priced in today’s dollars). And while 10 percent is certainly brisk growth, it’s nowhere near today’s bubble level—except perhaps in housing, though this bubble is of the Fed’s creation. Lastly, as Kindleberger points out in his Manias, Panics, and Crashes this steady appreciation in high-tier tulip bulbs was happening within the context of broader asset price inflation following the economic hard times during and after the War of Spanish Succession.
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Do Monarchies Have Higher Rates of Economic Growth?

09/20/2021Lipton Matthews

In its June edition, Cato Unbound published a feature discussing the pros and cons of constitutional monarchies. Quite surprisingly, mainstream academics are expressing a renewed interest in studying monarchies. Originally, arguing for the utility of monarchies was the reserve of libertarian intellectuals like Hans-Hermann Hoppe and Erik Kuehnelt von Leddhin. Nevertheless, during the past ten years, we have been fed a welter of empirical studies articulating the superiority of constitutional monarchies relative to democracies.

Following this trajectory, the scholars hosted by the Cato Institute proposed decisive arguments favoring their respective positions. Launching the debate lead essayist Vincent Geloso marshals a powerful justification for retaining constitutional monarchies where they already exist: “By investing in symbolism to reach high levels of popularity, ceremonial monarchs could be generating higher levels of trust…In so doing, they may be allowing a stronger civil society that can act as a substitute for government and as a check on the democratic tendencies to over-legislate and over-regulate.”

That monarchies cultivate social capital by serving as a symbol of political unity is an appreciated observation. Geloso is cognizant of monarchical virtues, however, other parties in the debate appear unimpressed. In his presentation “Monarchy: Cause of Prosperity or Consequence?” Rok Spruk submits that the survival of constitutional monarchies is a consequence of long-run economic growth. Spruk rubbishes the argument that monarchies motivate prosperity by asserting that the success of monarchies is a result of economic progress. For Spruk, economic prosperity is linked to the longevity of monarchical rule.

He claims that monarchies collapsed in European countries where the economy was underperforming. Spruk introduces an interesting counterpoint, but the story chronicled by history is more complicated. Thinkers like Alexis de Tocqueville, Erik Kuehnelt von Leddhin, and Ted Gurr have demonstrated that rising affluence can provide fertile ground for revolutions. Economic sluggishness may infuriate the working classes, but usually, revolts are orchestrated by socially ambitious intellectuals, as James Billington points out in his riveting tome Fire in the Minds of Men.

Primarily, revolts reflect the insecurities of thought leaders who demand greater prestige. Because revolutions do occur in prosperous times, one must be skeptical of the thesis that European monarchies imploded in the twentieth century due to an inability to record high growth rates. Neither is there a direct link between economic stagnation and political turmoil. In the Caribbean, there are many countries with sub-par growth rates and high levels of income inequality, yet their governments are indeed stable with Haiti being the outlier.

Similarly, Spruk’s contention that affluent European countries only retained the monarchical rule because of economics warrants scrutiny: “The wealthier European countries remained monarchies in the twenty-first century not necessarily because constitutional monarchies intrinsically develop better safeguards against arbitrary executive power but precisely they were able to achieve high levels of per capita income prior to major shocks like World Wars I and II.”

Spruk in his working paper on which the article is based cites the constitutional monarchy of Portugal as evidence for his theory. Though it seems odd to compare Portugal to constitutional monarchies like Britain and Sweden. Portugal functioned as an absolute monarchy for most of its royal history and unlike Sweden, Britain, and Denmark, she never experienced an age of free market reforms on a similar scale.

By the nineteenth century the Portuguese Empire was perceived as decrepit and lacking in modern sensibilities. Institutionally, Portugal was never in the league of the monarchies that survived hostile shocks of the twentieth century. It would be instructive to test the quality of Portugal’s monarchy comparing her to her peers. Spruk’s objection to the preservation of constitutional monarchies is a welcomed challenge for thinkers aiming to elucidate the merits of monarchical rule.

Admittedly, Spruk’s argument is one of the better objections to preserving constitutional monarchies, but on average, it seems that the evidence favors monarchies. Collins C. Ngwakwe and Mokoko P. Sebola in “Republics and Monarchies: A Differential Analysis of Economic Growth Link,” opine that though there is an insignificant relationship between regime type and growth “the mean GDP is slightly higher for monarchies than in republic countries”. Their conclusion is indeed striking: “Similarly, the variance statistic (a measure of instability) is lower for constitutional monarchies and higher for republics, indicating that constitutional monarchies appear more stable than republic countries.”

Additionally, Garmann (2017) supplements the literature by statistically proving that monarchies are associated with significantly better institutions. Though monarchies evidently possess some advantages, the evidence furnished in this piece is not to suggest that we should revert to monarchical rule, but rather indicate that the merits of studying alternatives to democracy.

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Does the Fed Control Wages?

09/16/2021Robert Aro

Could it be said that the Federal Reserve controls wages the same way they control the prices of goods and services? According to a CNBC article on Thursday, it seems the answer is “yes.”

A less than stellar August jobs report showed:

Average hourly earnings jumped 0.6% for the month, about double what Wall Street had been expecting, and the increase from a year ago stood at a robust 4.3%, up from a 4% rise a month ago.

Strangely, these stats make news headlines when it's fair to say the general public has no appetite to hear “average hourly earnings” increased by 0.6% for the month. These headlines provide little context and the general public has no idea where these figures come from, how they were calculated, nor what they mean.

The Fed also keeps various data about wages, such as the Average Hourly Earnings of All Employees, Total Private data set, with the average hourly earnings being $30.80 per hour. Consider geographic locations like New York City, Green Bay, or Honolulu, then think about how many different types of jobs are in existence. Whether a barista, construction worker, teacher, doctor, nurse, engineer, or president of a bank, one should question the usefulness of arriving at an average wage for an entire nation. 

Nonetheless, statisticians and the Fed claim they have a way to calculate this.

The problem is how it is applied for planning purposes. According to the article:

Some voices on Wall Street expect the wage and inflation numbers to start resonating with Fed officials.

Like inflation data, it becomes concerning when wages rise too fast, requiring the Fed’s intervention in order to correct.

During Powell’s Jackson Hole address, he did say:

But if wage increases were to move materially and persistently above the levels of productivity gains and inflation, businesses would likely pass those increases on to customers, a process that could become the sort of "wage–price spiral" seen at times in the past.

While the Fed has long believed in a Deflationary Spiral, we can add a Wage-Price Spiral on the list of economic threats the Fed should monitor.

Despite not telling readers how the Fed can control wages, or elaborating on the notion of a wage-spiral, CNBC is quick to assure readers that the Fed will look at:

 …potential pressures that could trigger a wage-price spiral, which economists consider “bad” inflation.

They attempt to add further depth of analysis by quoting the Chief Economist from Moody’s Analytics who tells us: “Powell and the Fed will be content with allowing wages to rise for now.” Concluding:

But so far, they’d say the wage growth they’re observing is more a feature than a bug.

It all seems somewhat haphazardly contrived, as if these economic slogans are being made up with no firm backing or theory behind them. Calculating the average wage is problematic. Add the idea that wages could rise too much or too fast, it would trigger prices to increase, causing the wrong type of inflation; the bad as opposed to the good inflation. These are all various steps in what amounts to a very big leap of faith. The only thing worse is the conclusion that, for now, the Fed is monitoring the situation.

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Dr. Robert Murphy on the Jordan Peterson Podcast

08/31/2021Tho Bishop

Over the last several years, as Jordan Peterson rose to international fame, many thoughtful individuals in the Mises Institute orbit have voiced an appreciation for how Peterson's work may complement the Austrian tradition. Some have written on the topic, including Jonathan Newman who noted in 2018:

Jordan Peterson is not famous for his action framework, but it is central to his Maps of Meaning book and university course. He uses it on his way to demonstrating the basis for belief systems and the superiority of a morality based on the inherent value of the individual.

The differences between his action framework and that of Mises and Rothbard may be attributed to the difference between psychology and economics. But the similarities are striking, even though, to my knowledge, Peterson has not read Mises or Rothbard.

Earlier this year, Jordan Peterson began tweeting about an interest in Austrian economics, asking for suggestions for potential guests. 

Thankfully one name, in particular, got the attention of Dr. Peterson, Bob Murphy. Not only has Dr. Murphy long demonstrated himself to be one of the best educators of the Austrian tradition, but he has long been familiar with Peterson's own work. His excellent book Choice Cooperation Enterprise and Human Action also offers a great introduction to Misesian thought for a new audience.

In his most recent podcast, Jordan Peterson published his interview with Dr. Murphy, offering his audience a deep dive into the Misesian tradition. 

As Dr. Peterson begins his show, "I wanted to talk to you because I wanted a two-hour lecture in Austrian economics." 

Video can be found on YouTube. The podcast format is not currently published on his official website, can be found on most podcast platforms, such as Spotify.

Is Property Theft? | Dr Robert Murphy | The Jordan B. Peterson Podcast - S4: E43

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Da Afghanistan Bank

08/17/2021Robert Aro

Did you know Afghanistan has a central bank? Established in 1939, it’s called Da Afghanistan Bank (DAB) and in the near future will likely come under control by the Taliban. Nonetheless, the institution has some history, like the nation of Afghanistan itself, which had a monetary system using coins dating back over two thousand years!

Their policies parallel those of the Federal Reserve.

DAB is run by the Supreme Council. Per the bio of Mr. Ajmal Ahmady, acting governor and acting chairman since 2020:

He has an MBA from Harvard Business School, a Master of Economics and Public Administration from the Harvard Kennedy School of USA. 

 With an impressive pedigree he manages various objectives of DAB, much like the Fed:

The primary objective of Da Afghanistan Bank shall be to achieve and to maintain domestic price stability.

Also like the Fed, DAB uses a variety of anti–free market interventionist policies such as:

Open Market Operations (OMOs) to manage liquidity in the money market. In case of excess liquidity available in the market, DAB mops up this surplus liquidity by using the monetary policy instruments.

Public address statements from DAB sound eerily similar to statements made by Jerome Powell. In this instance, the Afghani bank says:

While current reforms as well as increase in tax may cause an up-take in inflation, this is likely to be transient given excess capacity in the economy and well-anchored inflation expectations.

Transient inflation, one of the tritest and highly unexplainable economic terms of recent memory, has reared its ugly head even in Afghanistan. With inflation expectations expected to be around 5 percent year over year, one can only hope this transient period doesn’t last too long … and then of course one should hope for a little transient deflation to reverse the effects of said transient inflation, otherwise all price increases become permanent.

If there is any consolation, the bank has not ventured into negative interest rates as others have; per the above policy announcement, they increased overnight deposit rates from 3 to 6 percent.

Learning of another, lesser-known central bank’s policy and mandate, and comparing it to that of the Fed, helps to conceptualize some salient points of central banking. Whether it's the Federal Reserve or Da Afghanistan Bank, whether a Princeton/Georgetown-educated lawyer like Powell or an MBA graduate from Harvard like Ahmady sits at the helm, wherever a central bank exists, there stands an authority assigned to the task of doing both the impossible and the unnecessary.

Impossible by assigning arbitrary goals like “price stability” supported by circumlocution, such as mopping up “surplus liquidity,” these mandates are devoid of elucidation and seldom elaborated upon, beyond high-level talking points. They don’t hold up under the slightest of inquiries, such as how stable prices should be or noting each individual’s varying definition of price stability.

Da Afghanistan Bank, like the Fed, is also unnecessary. They both perform functions the free market could not only do, but could do better. That a monetary system existed in Afghanistan for over two thousand years and that its central bank has only existed for sixty should be telling of the actual need for a central bank.

Strangely enough, prior to today’s publication of this article, Reuters reported that Mr. Ahmady has now fled the country. He said:

It did not have to end this way. I am disgusted by the lack of any planning by Afghan leadership.

With Da Afghanistan Bank under Taliban control, the future of monetary policy looks uncertain. Will they maintain business as usual, using technocrats to employ interventionist techniques to stabilize the Afghan afghani, their local currency? Or will the new rulers look for older, long-forgotten methods such as a gold standard to supplant the dollar as world reserve currency? Maybe not, as that would most certainly lead to another war with America …

Image source:
Dr. Zhivago via Flickr
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Democracy According to The Office

06/01/2021Kollin Fields

It’s been said by democracy’s critics that the system is essentially two wolves and a sheep deciding what’s for dinner. But to its defenders, democracy has been described as an ethical ideal and a way of life—these conceptions nearly implying a metaphysical manifestation. While we have no way of knowing whether or not we’re living up to democracy as an ethical ideal, we do have evidence of its effectiveness as an electoral system, or lack thereof. If the goal is to secure good governance, then democracy generally fails. But democracy not only pertains to presidents and congressmen, but also down to the local town hall, school board, and mayor. Each of these political actors possesses power purportedly on behalf of “the people.” But I wouldn’t be the first to point out that when someone whom I didn’t vote for wields political power over me, they are not doing so with my consent; in this case, their exercise of power is not literally on my behalf. Libertarians are trapped in a by now obvious dilemma: vote as often as we can for the most “proliberty candidate,” or generally abstain from voting on the grounds that there’s no good candidates or that we refuse to give any kind of consent to broad political power. There is an illustrative example of this dilemma in an episode of The Office.

Later in the series (S8, EP19), a woman named Nellie declares she is the new manager after the real manager—Andy—leaves for several weeks. Everyone in the office is confused by her claim to authority, especially since she didn’t earn the position and no one consented to her newfound power. The main character, Jim, tries to convince everyone to just act as though she has no authority. Nellie, however, starts doing performance reviews and giving out raises based on who will accept her as the new boss. Once a few workers in the office begin accepting the idea that she has authority to issue raises, everyone else has a choice: continue to reject her authority, or accept it for the potential benefits it brings them. In addition to giving raises, she actually cuts the pay of a few skeptical workers who won’t consent to her new authority as boss. There are some interesting assumptions at play in this episode: the workers are so conditioned to having a boss that if their options are between an absentee manager and Nellie—the latter of whom is offering raises—there seems to be an obvious incentive to prefer Nellie, even though having no boss extends their personal freedom at work. But other than Jim and a few others, most of the workers in the office never consider rejecting the idea of a boss altogether.

This is how democracy works. Firstly, most assume there has to be a government, which represents the will of the people and enforces the law: this could be a local sheriff, state governor, or even the US president. The cost of trying to convince everyone else that this position or source of power shouldn’t exist is prohibitively high, so the next best option is to choose someone who we think will do the least amount of damage. But—and this is the rub of democracy—in so voting, just as some office workers began accepting Nellie’s raises, we imply a tacit endorsement or acceptance of political power. We have no way of indicating that we’re voting out of self-defense or that, all things considered, we wish something like school board seat 7 or county tax assessor didn’t exist in the first place; power is placed over us with no real alternative.

In this episode of The Office, the aspirational Dwight is likewise in a bind: either he accepts what he otherwise deems to be illegitimate authority, or he remains in the minority. In a democracy, we are all like Dwight: we can either “get a raise” (that is, vote for the candidate whose policies promise to benefit us), or be relegated to powerlessness through our inaction, accepting the dictates of the Nellies of the world. For instance, about a third of eligible voters didn’t vote in 2020, and yet Joe Biden is now their president, just as Trump was everyone’s president before him, including his most impassioned political enemies. Plenty of Americans engaged in hashtag activism to say that Trump was #NotMyPresident, but … he was. In a democracy, we all have little recourse against authority after the election is over. And if we don’t participate at all, we really have no say, since we are not factored into the “will of the people.”

But unlike an office manager, a politician could have control over our very life or death, or at the very least, our livelihoods. The state can send us to fight in wars, raise our taxes, and as covid policies have shown, they can force us to shut down our businesses and our very means of existence. Democracy means that if we never vote, or even if we do vote but our candidate never wins, all of these measures over our lives can be controlled by people to whom we never conceded authority. We are all Dwight in The Office, on the precipice of accepting Nellie’s authority or having it imposed on us regardless. She can give us a raise, but she can also reduce our pay. The American state can reduce our taxes or send out “stimulus checks,” but they can also send us to die in the sands of Afghanistan. The stakes are enormous in our modern democracy.

Like many workers in The Office, most people are too conditioned to think we need a boss, and that Nellie, or Joe Biden, is as good as any other. But if the fictitious world of Dunder Mifflin tells us anything, the workers’ most productive period was later in the series when their manager (played by Will Ferrell) was hospitalized after trying to dunk a basketball. After weeks without a boss, Jim says, “So as it turns out, unless you're a young child or a prison inmate, you don't need anyone supervising you. People just come in and do their work on their schedule. Imagine that. People like us allowed to sell paper. Unsupervised. And yet, somehow it works.”

We too might consider a world without arbitrary political power. Imagine that.

Image source:
TheMuuj via Flickr
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