Power & Market

Historical Controversies Podcast: Season 3

04/18/2018Mises Institute

Today, Chris Calton kicked-off the third season of his Historical Controversies podcast, which will recount the controversial history of the American Civil War.

The complete series (including Seasons 1 and 2) is available on iTunes, YouTube, Soundcloud, Google Play, Stitcher, Mises.org, and via RSS feed.

If you enjoy the podcast, please leave a positive rating and review.

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Hyperinflation Has Venezuelan Merchants Weighing Cash, and Now It's Breaking Their Scales

03/15/2018Tho Bishop

It is interesting to see how prices emerge in a hyperinflationary environment like  see in Venezuela. While the government finally cut its “official” exchange rate of 10 bolivars to the dollar, it continues to vastly overstate the value of its currency.

Luckily markets continue to find a way. Assisted by good old fashion corruption, military members and other government officials are able to profit off selling government supplies. Of course the question still remains: how is economic calculation is possible in a monetary climate as extreme as Venezuela?

In 2016, the Wall Street Journal published a fascinating article about a Home Depot employee named Gustavo Diaz who runs one of the most subversive websites back in his home country, DolarToday.com. The website takes information gathered from Venezuela black markets and uses it offer a real market value for the Bolivar. This information undermines the ability of the government and central banks to hide the consequences of their policies, leaving market actors better informed.

As Mr. Diaz puts it:

It’s ironic that with DolarToday in Alabama, I do more damage to the government than I did as a military man in Venezuela.

Another interesting measure has been pieced together by Bloomberg. Their Cafe Con Leche Index looks at the price of a cup of coffee in Caracas. A March 14th report has a .50 cent cup of coffee now costing 75,000 Bolivars, pushing the annual inflation rate over 4000%.

offee idnex.png

The rising price does create other challenges though. Increasingly merchants have relied on weighing cash used for transactions, rather than counting. Unfortunately this has created some new challenges for merchants, whose scales are not capable of handling the weights now required to buy goods such as ham. As Patricia Laya writes as part of a fascinating series Life in Caracus:

The store’s deli scales run to only six digits. And ham, my Whatsapp food-hunting community tells me, is retailing nowadays for about 1,480,000 bolivars per kilogram. It didn’t matter that I wanted only a few hundred milligrams. The cost was, at this market at least, incalculable.

A similar dynamic is impeding the use of credit and debit cards. The price of a set of sheets (33,541,963), a pair of Adidas sneakers (10,500,000) or even a slice of lasagna (401,450) can’t fit on the screens of older card machines; the solution is to split one purchase into several transactions. Even the invoice printers that many businesses use for reports to tax authorities are running out of space.

So how does a country like Venezuela reverse this sort of monetary chaos? Luckily the answer there is simple. It must end the socialist policies that destroyed the country, and abandon the Bolivar. At some point the latter will be inevitable. Hopefully for Venezuelans, the former is as well.

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Happy Birthday Carol Paul!

02/28/2018Mises Institute

Carol Wells Paul, married to Dr. Ron Paul for more than 50 years, was born on February 29th in a Leap Year. So we'll wish her a happy birthday today!

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Among her many achievements— mom to 5 great kids (3 of them medical doctors), expert seamstress, wonderful cook, and world-class hostess—her devotion to liberty is perhaps the greatest.

Here is a great interview of her by Ron himself.

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Healthcare play by Bezos, Buffett, and Dimon

01/30/2018Per Bylund

Today's big news is that Amazon.com's founder Jeff Bezos has teamed up with Berkshire Hathaway's Warren Buffett and JP Morgan's Jamie Dimon to push down the skyrocketing healthcare costs in the US. One must wonder, however, if it is a serious play or but a marketing schtick. As they say in the press release, as reported by NPR and others, the new company will be "free from profit-making incentives and constraints" yet aims to "cut costs."

This sounds a bit backwards. Surely these renowned gentlemen in business are aware of how incentives affect actions, both "actions" by organizations and those taken within organizations. Without a profit motive, what is the incentive to keep costs down, to innovate, and to streamline processes and routines? One must wonder why they choose to fight an uphill battle when it is completely unnecessary.

Profit is hardly what makes healthcare expensive - regulations, especially the government-granted monopoly privileges that permeate that industry, are the main culprit. If you are in business, surely you recognize this. Just like you recognize the power of incentives.

Unless, of course, this is but a marketing ploy, and not an actual attempt to lower healthcare costs. 

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Herbener: Are We Richer and Better Off Than We Think?

01/22/2018Ryan McMaken

Last Friday, Jeff Deist and I discussed the difficulty of really comparing the current standard of living to those of the past. During the interview, I mentioned Jeffrey Herbener's discussion with Tom Woods about the CPI, the use of hedonic adjustments, and changes in the standard of living overall. Anyone who enjoyed Friday's interview may also like Herbener's detailed discussion of price inflation estimates and related issues. 

Are We Richer and Better Off Than We Think?

The overall conclusion is that there are undoubtedly ways that our economic lives are improving. There are also ways that it is getting worse. The question is, how to these two trends balance? 

Woods notes that libertarians often rebel against discussions like these, as it is assumed that with so much government intervention in daily life, it must be obvioust that we're gettign poorer. But, as woods and Herbener note, it's not that easy:

Woods: Maybe it's the case that the market economy is so resilient, that it can still generate results under the influence of a substantial state apparatus. 

Herbener: Yes, absolutely, We Have a bifurcated economy, where the government heavily interferes in healthcare and education where we see quality and declining and prices going through the roof. And then sectors of the economy where the government is basically hands off, and there we see quality improving, prices going down, we see the normal capital-accumulation, technical-innovation process of the market.

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How To Make Sure You Keep Seeing the Mises Institute in your News Feed

01/19/2018Mises Institute

Facebook continues to tinker with its News Feed options. It's unclear if this will affect how often you see Mises Institute articles in your feed, but if you want to make sure we keep coming through, here's how. 

• Go to News Feed's "Edit Preferences" option on Facebook.com or in the app.
• Choose "See First" for the pages you want to see in your news feed.

Click the top option as shown in the image below, and if you're already following us, it will allow you to choose us and one of your priority news sources. 

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Of course, if you're not already following us, you can do so here: www.facebook.com/mises.institute

Changes to Facebook's News Feed could happen at anytime, so those wishing to see posts from their favorite pages are encouraged to edit their preferences immediately.

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How to Decentralize Eminent Domain Powers

12/05/2017Ryan McMaken

In the wake of the Supreme Court's Kelo decision on eminent domain, many pro-centralization libertarians complained that the Supreme Court should have outlawed state and local government authorizations of eminent domain. 

This was the wrong approach. The correct approach is to support the decentralization of eminent domain powers — and then to outlaw eminent domain at the state and local level. 

The idea that some remote government thousands of miles away ought to be micromanaging local affairs is not a libertarian idea. Lew Rockwell explains

And yet stealing isn't the only thing libertarians are against. We are also opposed to top-down political control over wide geographic regions, even when they are instituted in the name of liberty.

Hence it would be no victory for your liberty if, for example, the Chinese government assumed jurisdiction over your downtown streets in order to liberate them from zoning ordinances. Zoning violates property rights, but imperialism violates the right of a people to govern themselves. The Chinese government lacks both jurisdiction and moral standing to intervene. What goes for the Chinese government goes for any distant government that presumes control over government closer to home.

Thus, the Supreme Court in Kelo ruled the right way. 

In the wake of Kelo, what should have happened did happen in many states. 

In Indiana, for example, the state government explicitly outlawed the kind of eminent domain that the Kelo decision allowed. Even better, this Indiana law has proven to be a key factor in a recent landgrab by a city government in Indiana: 

If there were any doubt about the illegitimacy of the City’s efforts to compel property transfers to a private developer, Indiana’s eminent-domain reform settle the matter in the favor of the Plaintiffs. In 2005, the United States Supreme Court held, in Kelo v. City of New London, that the Fifth Amendment to the Constitution permits government to take private property for the mere purpose of promoting economic development. Less than a year later, Indiana enacted a comprehensive reform statute rejecting the Kelo decision as a matter of state law. The statute prohibits the transfer of property seized by eminent domain to other private parties except under narrow and enumerated circumstances. Under the new law, the fact that property happens to be located in “an area needing redevelopment” is not a justification for transferring it to another private party… Indiana has therefore rejected the kinds of completed transfers that the City is attempting in this case.

So, it seems the intervention of the Federal government wasn't necessary after all. 

Nevertheless, whenever some special interest group has a particular pet project, it always wants the federal government to step in and throw down a nationwide ban or mandate overriding all local inclinations and concerns. This is why the slavedrivers of old wanted nationwide fugitive slave laws. It's why modern-day interventionists want a nationwide minimum wage and nationwide gun laws. 

Otherwise, an interest group might have to go around the country convincing people to adopt the laws they favor. What a hassle! When you're a huge wealthy interest group, it's much better to just have the federal government hand down a coercive mandate. Problem "solved." 

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Herbener Contributes to New Book on the Theory of Costs

11/21/2017Shawn Ritenour
My friend and department Chairman Jeff Herbener has a chapter included in the new book The Economic Theory of Costs: Foundations and New Directions edited by Matt McCaffrey and published by Routledge. Herbener's chapter is entitled "Time and the Theory of Cost" The abstract reads as follows:
Production costs in Neoclassical models account for the physical conditions of production (MPP) and consumer demands (MR) but fail to incorporate time across the structure of production. Incorporation of real time in production necessitates the recognition that capitalist-entrepreneurs make production decisions. They discount the MRPs of factors when buying them in advance of selling their output and they must speculate about the DMRPs of factors in the face of uncertainty of the future when deciding what they will pay for them. This chapter develops a theory of cost in light of capitalist-entrepreneurs acting in real time.

It is a joy to work with colleagues who continue to add to our understanding of the laws of economics.

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Hunter Lewis: Powell is Closer to Schumer than Trump

11/02/2017Ryan McMaken

Hunter Lewis's op-ed at Foxnews today explains how Trump's new nominee for the Fed Chairmanship, Jerome Powell, is anything but a departure fron business as usual. Lewis begins by comparing Powell's appointment to that of Ben Bernanke:

By nominating Jerome Powell as chairman of the Federal Reserve, President Trump is elevating a nominal Republican but also an Obama administration appointee to the chairmanship of our nation’s central bank. Many consider the chairmanship to be the second-most powerful position in the U.S. government.

This is not the first time something similar has happened. In 2006 President George W. Bush appointed Ben Bernanke, also a nominal Republican at the time, who on leaving the Federal Reserve registered as a Democrat.

No wonder that Democratic Sens. Chuck Schumer of New York and John Kerry of Massachusetts publicly rejoiced when Bernanke was appointed. They correctly surmised that he was closer to them philosophically than to President Bush.

Democrats should be equally pleased about the Powell nomination. This puts someone in charge of the Federal Reserve who is more aligned philosophically with Schumer than with President Trump.

Lewis then goes into some history of the Fed's enthusiasm for "non-traditional" monetary policy which is designed primarily to help Wall Street and Washington, DC. The crash itself, had been triggered in part by Fed policy: 

The trigger for the Crash was the chairman’s stubborn refusal to reconsider the imposition of “mark to market” accounting on U.S. banks. This form of accounting reflects the current market value of assets and liabilities. Steve Forbes accurately identified “mark to market” regulations as “mark to make believe.” They were guaranteed to make the entire banking system insolvent.

When Bernanke finally relented and announced the termination of “mark to market” the stock market bottomed only a few days later and thereafter soared as more easy money was poured in. These policies, cheered on by the Democrats, represented true trickle-down economics. They helped those already rich, not the poor or the middle class.

During the Crash, Bernanke devised a novel monetary policy that was remarkably unsupported either by economic evidence or theory. Federal Reserve economists acknowledged that they could not model it. The stated purpose was to protect Main Street, although it was obvious that Wall Street and not Main Street was being bailed out. What was not so obvious was that the real intention was to rescue a tottering federal government debt system.

Hunter concludes by noting that Powell is merely a continuation of the current monetary status quo: 

On the Federal Reserve, Powell has been a “good soldier.” He never voted against the wishes of either Bernanke or Yellen. He vigorously opposed legislation proposed by Rep. Ron Paul, R-Texas, and his son, Sen. Rand Paul, R-Ky., to audit the Federal Reserve.

The Paul legislation would have penetrated some of the secrecy of the Federal Reserve, which finances itself “off-budget” with newly created money, notwithstanding the Constitution’s requirement that government spending be approved by Congress.

Powell can be relied on to oppose any reform of the Federal Reserve or any reconsideration of the Bernanke system, despite the dismal record of the U.S. economy since the Crash. Powell was reportedly favored by current Treasury Secretary Steve Mnuchin, who earlier worked for Goldman Sachs and liberal financier and donor George Soros.

Read the full article at Foxnews. 

Powell Has Long Hated Fed Reform

For further evidence of Powell's position on Fed reform, we need look no further than his official comments on "Audit the Fed" legislation:

Audit the Fed also risks inserting the Congress directly into monetary policy decisionmaking, reversing decades of deliberate effort by the Congress to insulate the Fed from political pressure in carrying out its day-to-day duties. Indeed, some advocates of the bill have expressed support for complete elimination of the Federal Reserve. Long experience, in the United States and in other advanced economies, has demonstrated that monetary policy is most successful when decisions are rendered independent of influence by elected officials. As recent U.S. history has shown, elected officials have often pushed for easier policies that serve short-term political interests, at the expense of higher inflation and damage to the long-term health and stability of the economy.

Powell goes on to repeat the usual orthodoxy pushed by central bankers which pushes the myth of Fed independence, and the idea that the Fed is a non-political organization. In short, Powell believes the Fed does only excellent work, and no reform is warranted at all. 

Powell is nothing more than the usual sort of central banker. 

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Historical Controversies Podcast: Season 1

10/31/2017Mises Institute

Last week, Chris Calton completed his first season of Historical Controversies podcast, which covered the History of the War on Drugs. The complete, twelve-episode series is available on iTunes, YouTube, Soundcloud, Google Play, Stitcher, Mises.org, or via RSS feed.

And, if you enjoy it, please leave a positive rating and review.

For further reading, Chris has written a helpful Bibliographical Essay, which is available in PDF.

Season 2—covering the Antebellum Period—begins tomorrow.

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