Power & Market

First book in Austrian Economics book series

04/03/2018Mises Institute

The first volume of a new book series on Austrian economics edited by associated scholar Per Bylund and published by the British academic publisher Agenda Publishing is now available: associated scholar Mateusz Machaj's Capitalism, Socialism, and Private Property (2018).

In his book, Machaj extends Mises' and Hayek's arguments against socialism to prove once and for all that the "market socialism" solution to Mises' calculation problem, formulated by Fred Taylor, Oskar Lange, and Abba Lerner, fails to provide the solution they promised. Market socialism, Machaj argues, cannot provide the same solution as market prices, and therefore fails to meet Mises' challenge.

The book is available at Agenda Publishing's website. Faculty members and students are encouraged to order a copy for their university libraries.

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Federal Budgets are Meaningless

02/14/2018Jeff Deist

Reactions to presidential budget proposals generally run along predictable party lines: the party occupying the White House lauds it as a sober and responsible reflection of the nation's priorities, while the opposition party insists it will kill babies and bring about the general downfall of the nation. We might expect this political grandstanding to grow more intense in the Trump era, and so it has: the administration's new 2019 budget proposal has been met with howls of disapproval from many corners. 

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 We alternatively are told Trump's budget fights repeals Obamacare, mandates a border wall, swells defense spending, privatizes space travel, "reforms" student loans and food stamps, fights the opioid crisis, creates huge deficits, and somehow manages to expand federal expenditures 13% while simultaneously slashing critical programs. It's a starvation budget! It's a bloated pork-barrel giveaway! It even threatens Meals on Wheels! The average American, tribally inclined to believe one side's hype over the other, hears all of these things and wonders whether they're true.

But they are not true. Trump's budget, like all presidential budgets, is a meaningless document full of trial balloons that serve current political purposes rather than determining future spending priorities. Budgets have no bearing on future actions by Congress or the president, they don't change substantive law in any area, and they don't create deterministic deficits in the future. They are political documents, and should be understood as such.

A few points bear mentioning: 

  • Presidents have no constitutional role in the budget process, other than signing or vetoing a budget bill crafted by Congress alone.
    Unfortunately, the lawless and relentless rise of presidential power during the 20th century did not spare the budget process. But the Constitution plainly and unequivocally grants sole authority over the power of the purse to Congress in Article I, section 9, clause 7. Presidents are charged with executing the spending priorities of Congress, not setting them in the Oval Office.

    The more modern "tradition" whereby administrations propose an annual budget to Congress in early February is entirely extra-constitutional: the legally dubious Budget and Accounting Act of 1921 created the Office of Management and Budget under the auspices of the president, when it fact such an office should fall under congressional control (as the later-created Congressional Budget Office does). It is a mistake to further entrench the harmful idea that presidents have any say whatsoever over the federal budget.
     
  • Budgets have nothing to do with taxes and spending.
    Congress funds all of the federal departments, agencies, and programs through the annual appropriations process. Technically there are 12 annual appropriations bills, one for each Congressional subcommittee with jurisdiction over particular funding areas (e.g. defense, transportation, agriculture). House and Senate committees each pass their version, then in theory they hammer out an agreement known as a conference report that both bodies pass and send to the President. This process has broken down mightily in the last 15 years, because the poisoned political atmosphere makes agreement on 12 huge bills (all full of tucked-away language from swarming but friendly lobbyists) nearly impossible. So in recent years Congress has passed overarching "omnibus" bills that fund everything, or packaged "minibus" bills that combine two or more appropriations bills.

    But nobody gives a moment's thought to the already-passed fiscal year budget during the summer appropriations process. The budget is like an old newspaper, a story that is utterly irrelevant to the appropriations process. The only numbers that matters are last year's appropriations spending; those numbers form the "baseline" from which the committees begin-- not those suggested in the White House budget. The priorities and initiatives outlined in the administration's budget proposal are never considered for a moment. 

    Tax bills similarly make their way through committees in the House and Senate, though they must originate in the House. Unlike appropriations bill, tax legislation is not particular to a single fiscal year, and remains in effect unless later revoked, amended, or subject to sunset periods. Tax proposals and revenue projections contained in the budget again are irrelevant and never considered by Congress. 

    So how much Congress spends each year, and how much the Treasury collects in taxes, is wholly a function of the appropriations and tax bills passed by Congress (again, save for a presidential veto). 
     
  • Budgets have no binding effect on Congress or the president in future years.
    All of the spending and revenue projections contained in the administration's budget will be utterly forgotten in a month or two. Even if passed into law, the budget bill has no legally binding effect whatsoever on future years, future Congresses, or future presidents. Nor does it have any institutional effect. Nobody in Congress ever says. "Gee, remember that budget we passed back in 2010? We projected spending only $15 billion every year for NASA. I guess we'd better stick to it since we promised... Sorry NASA."

    Nobody knows, or can know what Congress will spend down the road-- just look at "emergency supplemental" bills passed during the Bush and Obama administrations to fund the wars in Iraq and Afghanistan. They were passed without regard to presidential budgets, and completely apart from the existing appropriations/omnibus/minibus bills already voted on. What exactly is the point of a budget, if Congress simply can pass additional spending bills whenever it chooses? So when the New York Times breathlessly announces Trump's budget creates huge deficits in the future or increases poverty, it displays a profound ignorance of the two points above. The administration has no budget, and it doesn't ultimately control spending and tax bills. 

We all would benefit from jettisoning the presidential budget charade. It only creates more meaningless political theater, and diverts our attention from what really matters: the total amount Congress spends and the total amount it takes from the private economy in taxes.

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Farewell, Steve Bannon

01/10/2018Ryan McMaken

It's been a bad few months for Steve Bannon. He was fired from his White House job in August. Then he supported Roy Moore and other political dead ends in an attempt to put himself forward as the leader of "Trumpism." Bannon then decided to provide a variety of juicy quotations denouncing Donald Trump in order to help Michael Wolff with his anti-Trump expose. Shortly thereafter, Bannon backtracked and apologized. After that, Bannon lost one of his most prominent sources of funding — the wealthy Mercer family. Finally, to cap it all off, Bannon was fired from his position as an adviser and radio host at Breitbart, where he had long enjoyed positions of leadership. 

This year-long run of total failure comes at the end of a remarkably short period of fame for Bannon, who, prior to Andrew Breitbart's untimely demise in 2012, was neither especially influential or well known. 

In his short period at Breitbart, Bannon did, however, manage to cozy up with Donald Trump and many within his movement, and turn this into an influential position at the White House. Bannon quickly faded as an influential figure in Washington.

In spite of Bannon's short and not-especially-notable tenure as a senior political adviser, Bannon continues to benefit from myths about his status as a kingmaker in Washington and around the nation. But, as Barbara Boland notes this week at The American Conservative, the myth was always just that — a myth. 

Bannon — always a relentless self-promoter — also managed to create the impression that he was the purveyor of some new kind of insightful and revolutionary political plan and vision. The idea was that he was going to create a Republican majority that would persist for generations. 

Upon closer inspection, however, there was never anything especially insightful, creative, or unique about this vision. It has always been nothing more than a re-tread of economic populism in which the Republicans would buy votes with lavish government spending on pensions and other social programs that are allegedly attractive to the "working classes." This would be coupled with economic nationalism opposed to free trade and devoted to aggressive foreign policy. 

David Stockman explains how Bannon's position was just the usual warfare-welfare state vision dressed up in nationalist and culture-warrior rhetoric: 

The last thing America needed was a conservative/populist/statist alternative to the Welfare State/Warfare State/Bailout State status quo. Yet what Bannonism boiled down to was essentially acquiescence to the latter — even as it drove politicization deeper into the sphere of culture, communications and commerce.

Stated differently, the heavy hand of the Imperial City in traditional domestic, foreign and financial matters was already bad enough: Bannonism just gave a thin veneer of ersatz nationalism to what was otherwise the Donald's own dogs' breakfast of protectionism, nativism, xenophobia, jingoism and strong-man bombast.

As Stockman correctly notes, Bannon never exhibited any real understanding of how central banking, Wall Street cronyism, and economic policy were driving the American cultural and economic trends that Bannon so often condemned. 

Instead, Bannon took to blaming people who do understand economics — i.e., Austrian-school economists and various free-market activist types — for various national ills, and for leading the Republican party astray. Says Bannon: 

 And then the Republicans, it’s all this theoretical Cato Institute, Austrian economics, limited government — which just doesn’t have any depth to it. They’re not living in the real world.

Later, Bannon returned to the theme, claiming that free-market ideas don't matter, and that "it is workers, not libertarian theorists, who are the backbone of the country.” (It's unclear if Bannon intends to imply that all libertarians are pie-in-the-sky "theorists" or if he is willing to admit that many libertarians do, in fact, work for a living.) This sort of right-wing Leninism-Maoism functions on the idea that "the working man" is all that matters, and that entrepreneurship, capital, and markets, are all somehow at odds with ordinary people being able to make a living. Not surprisingly, Bannon proposed to prop up the working classes with prohibitions on free trade, on migration, and by protecting federal social programs — thus expanding the debt burden and tax burden on everyone. 

The realities of economics matter little, though, when your political ideology relies primarily on sentimentalism. Bannon bases much of this position on his own nostalgia for the good ol' days in "an observant Catholic family" in a working class neighborhood. 

For Bannon, though, his devotion to this worldview never gets much beyond politics. Indeed, Bannon has an odd way of expressing his supposed devotion to the Catholic social milieu he praises. Divorced three times, Bannon apparently couldn't be bothered to personally do much toward creating the “typical fifties-sixties Americana neighborhood” that he says he wants to re-create. And this well illustrates the problem with turning to politics to cure every social ill. Erecting trade barriers and trashing immigrants isn't going to rehabilitate the American family, or convert people to a devout religious life. That sort of thing requires a lot of difficult non-political action. Were Bannon committed to getting government off the backs of people so they could pursue these goals voluntarily — via decentralization or other practical measures — that would be a good thing. But that has never been Bannon's goal. 

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