Power & Market
Today, Chris Calton kicked-off the third season of his Historical Controversies podcast, which will recount the controversial history of the American Civil War.
If you enjoy the podcast, please leave a positive rating and review.
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.
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."
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.
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.
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.
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.