Power & Market

How Efficient Is the Market, Really? Challenging the Chicago Hypotheses

In 2008 Warren Buffett issued a public challenge to the industry he most despised: hedge funds. Charging its clients 2% of assets under management plus 20% of any profits, Buffett wagered none of them could beat the annual return of the S&P 500. That bet was accepted, and ten years later the token wager of one million dollars was duly paid to the charity of Buffett’s choice.

Below is a graph depicting the results of the participating funds against the returns of an S&P 500 Index:

While it is true that the period in question featured an historical bull market, reaching back into the data and the history of major market participants reveals that the same would have been true at almost any point in the last forty years. Only a handful of investors, a literal handful, have been able to beat the market for their clients in the long run after fees and transaction costs are considered. Buffett, himself on that list, is so confident in the superiority of investing in broad-based index funds that he is said to be leaving the majority of his estate in them for his wife.

Other wealthy investors have taken note, with the share of assets under hedge fund management falling over the past five years.

While the commissions and fees hedge funds charge are large, what explains the basic inability of the average fund, staffed by ivy league quants doing cutting edge analysis running state of the art software, to significantly beat the market over the long run?

The answer, at its core, is the Efficient Market Hypothesis.

In the words of its author, Chicago School economist Eugene Fama (1970), the Efficient Market Hypothesis (EMH) is the belief that “prices reflect all available market information.” The implication being that, if they didn’t, arbitrage opportunities would arise, and prices would be corrected by those large investors with the resources to identify and make such corrections. The focus of the theory, therefore, is on information and its impact on prices.

EMH makes four basic assumptions: rationality, risk aversion, responsiveness to new information, and some amount of randomly distributed error (aka Malkiel’s “Random Walk”). Further, it takes three generally accepted forms:

  • Weak-Form Efficient: above market returns cannot be gained from past market data (aka: technical analysis), but can be had from some kinds of fundamental analysis.
  • Semi-Strong-Form Efficient: prices reflect all publicly available information. Prices will only change with new information, the emergence of which is assumed to be more or less random (thereby negating any prospect of above market returns via fundamental analysis).
  • Strong-form Efficient: even with access to insider information an investor cannot beat the market.

Immediately, one can see that the strong-form of the EMH cannot possibly be true. Insider trading is illegal for a reason, and deals like Berkshire’s recent purchase of a large stake in videogame company Activision immediately before it was announced the company would be acquired by Microsoft raise eyebrows.

Between the weak and semi-strong forms, however, there is a lot of gray area. And many economists since the 1980s, including the Yale’s Robert Shiller and Chicago’s Richard Thaler, have made arguably the largest contributions of their careers studying the various ways in which markets apparently misbehave according to the various forms of the EMH.

To take a few examples, seasonal effects defy even the weak form of the EMH. The so-called Santa Clause rally is perhaps the best known of these phenomenon. Regardless of the wider macroeconomic conditions, market momentum, or exogenous risks, investing strictly on the basis of calendar dates, from the last five trading days in December through the first of the new year, has yielded a return 75% of the time. From a statistical standpoint, this is improbable, though several rather mundane facts may explain the anomaly: equities are generally at a cyclically lower level to start December due to tax reasons, professional traders being on vacation makes for lighter volume and fewer short sellers, and purchases in anticipation of another observed historical tendency, the January Effect.

In his analysis of P/E ratios, Shiller provides possibly the strongest evidence against the semi-strong-form EMH:

What he found was that buying and holding companies with relatively lower P/E ratios over the long-term produced the highest returns over those periods – something fundamental analysis and projections of future earnings could contribute to optimizing.

As pioneers in behavioral and narrative economics, both Thaler and Shiller also believe that the stories we tell ourselves about the stock market matter – how much, they can’t quantify. So, too, that systemic biases in thinking, such as the herd effect and hot hand fallacy, can drive market action in ways EMH would not predict – such as the 1990s IPO tech bubble, the rise of the cryptoverse, the implosion of LTCM, or the London Whale.

As far as bubbles go, Shiller correctly forecast both the tech bust in the late 1990s and the ticking time bomb in the housing market in the mid-2000s. But it is worth noting that while in retrospect everyone admits prices of mortgage backed securities were mispriced in accordance with their actual level of risk for several years in the mid-2000s, it was impossible to convince anyone of that at the time. Indeed, Thaler admits that while bubbles exist, we can really only prove they were bubbles after the fact. Afterall, there were plenty of buyers in every case, and who was anyone to say for certain that the future wasn’t going to be radically different from the past? Or that buying equities whose prices were rising wasn’t rational and efficient, value being subjective? Afterall, what is the value of something if not what amount it trades for between informed market participants freely exchanging?

Under such circumstances, an investor who thought they had identified such an inefficiency in the market and sought to profit from it by going short might wind up running out of money before the market ran out of enthusiasm: as with George Soros in the 1990s and tech.

Shorting being both risky and expensive, in such circumstances the great irony is that the rational thing to do for the average participant from a game theoretical standpoint is to ape the market and go along for the ride – hopefully using their self-awareness of actual risk levels to jump ship at some point before the crash.

It seems clear that between a combination of momentum trading, innovative strategies, superior analysis, high frequency trading for momentary and infinitesimal price arbitraging opportunities, and guessing correctly at future trends, can lead some firms to obtain above market returns. However, once fees and expenses are considered, the actual return to investors has been below the market average. Furthermore, virtually no funds or managers are able to sustain above market returns over the long run.

There have, of course, been periods where this was not true. The first decade of the 2000s as well as the ten years between 1965-1975 would have seen buyers of the S&P 500 index suffer a slight loss, while investor at the most successful funds of their time would have shown a positive return.

All things considered, for the average person planning for retirement, assuming they have neither the time or training to do the level of due diligence and analysis required for making superior individual stock selections, they really have been best off buying and holding broad based index funds rather than trusting to expensive, and often wrong, “experts.”

Whether or not this will continue to be true over the next several years, only time will tell.

As George Bragues argued in the QJAE in 2014, the data clearly reveals markets behave irrationally at times with respect to prices, earnings, dividends, acquisitions, et cetera; however, the market is not irrational either in that it is gradually self-correcting, bubbles are difficult to spot, and even more difficult to time.

Building on Shostak’s critique of Markowitz’s Modern Portfolio Theory, what this means for the efficient Austrian portfolio will be the subject of another discussion.

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How the West Was Won: Counterinsurgency, PSYOPS and the Military Origins of the Internet, Part 3: The War is Over, The Good Guys Lost

COIN+TELPRO was a series of illegal operations conducted by the FBI between 1956-1971, to disrupt, discredit and neutralise anyone considered a threat to national security, including members of the Women’s Liberation Movement and even the Boy Scouts of America.

And it wasn't just the customary wiretapping, infiltration and media manipulation, the FBI committed blackmail and murder.

In the 1960’s a Washington Post expose by army intelligence whistle-blower, Christopher Pyle, revealed a massive surveillance operation run by the Army, called CONUS Intel. It involved thousands of undercover military agents infiltrating and spying on virtually everybody active on what they deemed ‘civil disturbances.’ It turns out, many of those targeted had done nothing even remotely subversive, unless you consider attending a left-wing college presentation or church meeting, revolutionary.

These programs came to a head in the 1970’s, when an investigation by the US Senate, conducted by the Church Committee, uncovered decades of serious, systemic abuse by the CIA. As if predicting the internet as an instrument for mass surveillance, Senator Frank Church warned that the NSA's capabilities could "at any time could be turned around on the American people."


Before the internet, the deployment of PSYOPS was limited to legacy media and permitted only on foreign soil. But that all changed in 2013, when the government granted themselves permission to target ordinary Americans.

Conceived at the end of the cold war as the Broadcasting Board of Governors, USAGM is a lesser-known government agency charged with broadcasting thousands of weekly hours of US propaganda to foreign audiences, that has played a major role in pushing pro-American stories to former Soviet Bloc countries ever since Perestroika.

For decades an anti-propaganda law, known as the Smith-Mundt Act, made it illegal for the government to conduct PSYOPS against US citizens. But that all changed in 2013 when the National Defence Authorization Act repealed that law and granted USAGM a licence to broadcast pro-government propaganda inside the United States.

To what extent US citizens are being targeted by propaganda is anyone's guess, since PSYOPS largely take place online, where it's difficult to distinguish between foreign and domestic audiences.

What we do know is that in 2009 the military budget for winning hearts and minds at home and abroad had grown by 63% to $4.7 billion annually. At that time the Pentagon accounted for more than half the Federal Government's $1 billion PR Budget.

An Associated Press (AP) investigation in 2016 revealed that the Pentagon employed a staggering 40% of the 5,000 working in the Federal Government's PR machines, with the Department of Defence, far and wide, the largest and most expensive PR operation of the United States government.

The Facebook’s-Intelligence-Harvard Connection

Consistent with the opaque nature of Facebook's origins, shortly after its launch in 2014, co-founders Mark Zuckerberg and Dustin Moskovitz brought Napster founder Sean Parker on board. At the age of 16, Parker hacked into the network of a Fortune 500 company and was later arrested and charged by the FBI. Around this time Parker was recruited by the CIA.

To what end, we don’t know.

What we do know is that Parker brought Peter Thiel to Facebook as its first outside investor. Theil, who remains on Facebook’s board, also sits on the Steering Committee of globalist think tank, the Bilderberg Group. As previously stated, Thiel is the founder of Palantir, the spooky intelligence firm pretending to be a private company.

The CIA would acquire an equity stake in the firm through their venture capital arm, In-Q-Tel. At the time of his first meetings with Facebook, Theil had been working on resurrecting several controversial DARPA programs.

Which begs the question: With intelligence assets embedded in Facebook's management structure from the get-go, is everything as it seems at 1 Hacker Way?

According to Lauren Smith, writing for Wrong Kind of Green:

“Some of Facebook’s allure to users is that Mark Zuckerberg and his friends started the company from a Harvard dorm room and that he remains the chairman and chief operating officer. If he didn’t exist, he would need to be invented by Facebook’s marketing department.”

By the same token, if Facebook didn't exist it would need to be invented by the Pentagon.

To achieve this, you would need to embed government officials in Facebook's leadership and governance. Cherry picking your candidates from, say, the US Department of Treasury, and launching the platform from an academic institution, Harvard University, for example.

According to the official record, Zuckerberg built the first version of Facebook at Harvard in 2004. Like J.C.R Licklider before him, he was a psychology major.

Harvard's President at that time was economist Lawrence Summers, a career public servant who served as Chief Economist at the World Bank, Secretary of the Treasury under the Clinton Administration, and 8th Director of the National Economic Council.

Now here's where it gets interesting. Summers' protege, Sheryl Sandberg, is Facebook’s COO since 2008. Sandberg was at the dials during the Cambridge Analytica scandal, and predictably, manages Facebook’s Washington relationships. Before Facebook, Sandberg served as Chief of Staff at the Treasury under Summers and began her career as an economist, also under Summer, at the World Bank.

Another Summers-Harvard-Treasury connection is Facebook’s Board Member, Nancy Killefer, who served under Summers as CFO at the Treasury Department.

It doesn’t end there. Facebook’s Chief Business Officer, Marne Levine also served under Summers at the Department of Treasury, National Economic Council and Harvard University.

The CIA connection is Robert M. Kimmett. According to West Point, Kimmett “has contributed significantly to our nation’s security…seamlessly blending the roles of soldier, statesman and businessman. In addition to serving on Facebook's board of Directors, Kimmett is a National Security Adviser to the CIA, and the recipient of the CIA Director’s Award.

The icing on the cake, however, is former DAPRA Director, Regina Dugan, who joined Facebook’s hardware lab, Building 8, in 2016, to roll out a number of mysterious DARPA funded-projects to, essentially, hack people’s minds with brain-computer interfaces.

As luck would have it, just before Duggan’s arrival at Facebook, the social media giant orchestrated the controversial mood manipulation PSYOP, known as the Social Contagion Study. The experiment would anticipate the role social media went onto play during the pandemic.

In the study, Facebook manipulated the posts of 700,000 unsuspecting Facebook users to determine the extent to which emotional states can be transmitted across social media. To achieve this, they altered the news feed content of users to control the number of posts that contained positive or negative charged emotions. As you would expect, the findings of the study revealed that negative feeds caused users to make negative posts, whereas positive feeds resulted in users making positive posts.

Once we understand this, it becomes clear how fear of a disease, which predominantly targeted people beyond life expectancy spread like wildfire in the wake of the Wuhan Virus. In locking down the UK, Boris Johnson warned the British public that we would all lose family members to the disease. When nothing could be further from the truth. The pandemic largely happened in the flawed doomsday modelling of epidemiologists, it happened across the corporate media, and it happened on social media platforms like Facebook. It wasn’t so much a pandemic, but the social contagion experiment playing out in real time.

But there was more than just social media manipulating our emotional states, fear, shame, and scapegoating was fife throughout as the British government deployed behavioural economics to, essentially, nudge the public towards compliance.

Launched under David Cameron's Government, the Behavioural Insights Team (BIT), (affectionately known as the Nudge Unit), are a team of crack psychologists and career civil servants tasked with positively influencing appropriate behaviour with tiny changes.

But according to whose measure of appropriate behaviour, exactly?

A clue lies in the fact that BIT was directed by Sir Mark Sedwill during the first lockdown. He’s one of Britain’s most senior national security advisors with links to M15 and MI6.

That’s an intelligence operative ruling by psychological manipulation. Though we are led to believe, in a democracy the government is an agency of the people, given force of law by the will of the people.

But what happens when our consent is manipulated by those in power?

One consequence is that the foxes take charge of the chicken coop. Another is that we begin to see drastic changes to the constitutional landscape. Politicians acquire impunity from public scrutiny and an entire nation is kept under house arrest.

But this demonisation of the masses is also the backwash of a protracted counterinsurgency crusade waged on ordinary people. When the Berlin wall came down in the nineties and decades of counterinsurgency was rendered obsolete, the battlelines moved from East to the West, from the Soviets to the lower orders of society. The mythos of communist infiltration, that gave rise to the threat of terrorism, is the ancestor of today’s biosecurity state. A government that tightens its grip, using fear of a common enemy, will find no shortage of common enemies, to continue tightening its grip.

From Green Pass to Digital Nexus

Strong-arming the world’s population under the rubric of biosecurity would not have been possible without the internet, and if the expulsion of the military and intelligence community from academic institutions in the 1960's had not resulted in the creation of Silicon Valley, they would not have acquired total information awareness, the precursor to the Green Pass.

But this formidable goal also caused the US to morph into the opponent it had been fighting during the cold war, as predicted by public intellectuals in the 1960s.

And so, with an annual budget of $750 billion and 23,000 military and civilian personnel in their employment, the Pentagon failed to denounce what many armchair researchers called out in the early days of the pandemic. That a global coup was underway was patently obvious, as crisis actors played dead in Wuhan, China.

Instead, those charged with protecting the west from Soviet-style putsch failed to apprehend it happening right under their noses. It's not so much that they were caught with their trousers down, it’s that they aided and abetted the coop. Years of fighting a statist, expansionist adversary, caused the intelligence state to mutate into their nemesis, namely China.

It is uncanny that the country with the worst human rights record on earth became the global pacemaker for lockdowns, as western democracies exonerated their existential threat and bowed to China’s distinct brand of tyranny.

As a result, the big tech data analytics pioneered by Silicon Valley luminaries, that was road tested in China, finally landed on the shorelines of western democracies.

And in an ironic twist of fate, the intelligence state created at the end of world war II, under the National Security Act, conceived the very corporations that would bring about the end of constitutional democracy, that would author a new bill of rights from their own community standards de jour, and that would shift us from sovereign nation states to global governance, into the collectivist future the Pentagon had been charged with protecting us from.

As Goethe quote goes ‘None are more hopelessly enslaved than those who falsely believe they are free.’ Namely, anyone still looking through rose-tinted lenses in the digital age, oblivious to the fact they are victims of systematic addiction. The bread and circuses of the internet influences the same dopamine rewards centres and neural circuitry motivators as slot machines, cigarettes, and cocaine, as was originally intended by psychologists like JCR Licklider, at the helm of this new technology that would exploit basic vulnerabilities in the human psyche.

As we descend further into the maelstrom of the digital age, the algorithms will get smarter, the psychological drivers will become more persuasive and digital rubric will become more real. Until eventually we will lose touch with reality altogether. But don't worry, this war of attrition is happening in conjunction with the roll out of new software and devices, and most will be too busy building their digital avatars or dissenting on social media to know any better.

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How the West Was Won: Counterinsurgency, PSYOPS and the Military Origins of the Internet, Part 2: The Military Origins of the Internet

As Sasha Levine reveals in his ground-breaking book, Surveillance Valley, at the height of the Cold War, US military commanders were pursuing a decentralised computer communications system without a base of operations or headquarters, that could withstand a Soviet strike, without blacking-out or destroying the entire network.

The project was coordinated by the Defence Advanced Research Projects Agency (DARPA), created by President Eisenhower in 1958, for the development of technologies that would expand the frontiers of science and technology and help the US close the missile gap with the Soviets.

DARPA has since been at the vanguard of every major advancement in the development of personal computers ever since the cold war, culminating in 1969 with the first computers being in universities across the US.

A few years later DARPA would develop the protocols to enable connected computers to communicate transparently across multiple networks. Known as The Internetting Project, DARPA’s prototypical communications network, the ARPANET, was born in 1973.

Fast forward to 1990 and the ARPANET was officially decommissioned, and the Internet privatised to a consortium of corporations including IBM and MCI. Eventually the federal government created a dozen or so network providers and spun them off to the private sector, building companies that would become the backbone of today's internet, including Verizon Time-Warner, AT&T and Comcast. That’s the same six corporations who not only own 90% of US media outlets, they control the flow of global communications, through a process of absolute vertical-horizontal alignment of legacy media with digital media, and the infrastructures and technologies that enable their mass communication.

J.C.R. Licklider

A central player in the development of the ARPANET, who many consider the founding father of computing, was American psychologist, J. C. R. Licklider.

Lick, as he was known, was the first Director of the agency tasked with executing DARPA's information technology programs, The Information Processing Techniques Office (IPTO), that has been responsible for just about major advancement in computer communications since the sixties.

As Stephen J. Lukasik, a contributor to the ARPANET project reflected in his paper ' ‘Why the Arpanet Was Built’ ‘Lick saw information technology and behavioural and cognitive science issues as connected.’

Lick was essentially predicting how the internet would go on to evoke real world social processes that have radically transformed how we communicate, organise and process information. It is no coincidence that a psychologist of ‘Licks calibre was at the vanguard of a new technology designed to exploit basic vulnerabilities in the human psyche.

In the 1960’s Lick oversaw DARPA’s strategic interest in a new frontier of information technology, called Brain Computer Interfaces (BCI’s). In his famous paper, considered one of the most important in the history of computing, Lick put forward the then radical idea that the human mind would one day merge seamlessly with computers. He was anticipating the evolution of AI and the role that DARPA would go on to play in funding just about every major advancement in BCI technology over eight decades, including Elon Musk’s brain-machine interface company, Neuralink.

The Vietnam War

The ARPANET brought together the Pentagon’s war machine with university research departments and the Bay area’s counterculture scene. Inspiring much of the anecdotal idealism that would define the early years of cyberspace as a liberating new frontier for humanity.

But war hawks and intelligence analysts had other ideas. If the lessons of the Vietnam war were anything to go by, the future of US warfare would not be with nation states, it would be with ideologies, or more specifically, grassroots movements, such as the Viet Cong, who had the power to stoke the flames of civil unrest, that could lead to uprisings, or worse, revolution. Alternative approaches were, therefore, needed to infiltrate and disrupt this new threat to the free world.

As the war raged in Southeast Asia, another psychology PHD, Robert Taylor, joined DARPA as the agency's third director. Taylor transferred to Vietnam in 1967, to establish the first computer centre at the Military Assistance Command base in Saigon, a central pillar in the DoD’s psychological warfare operations.

The move was endemic of the changing rules of military engagement that saw DARPA, and indeed, this new technology, playing a major role in the war effort, both in Southeast Asia, and at home on US soil, against the growing anti-war movement.

In 1968, Taylor and ‘Lick published their seminal paper "The Computer as a Communication Device." Laying out the future of what the Internet would eventually become. The paper began with the visionary statement: "In a few years, men will be able to communicate more effectively through a machine than face to face.” Anticipating the meteoric rise of social media, particularly Facebook, in the decades to come.

Bringing the PSYOP Back Home

The origins of Facebook coincide with a controversial military program that was mysteriously shut down the same year Facebook launched.

The military program in question, LifeLog, was developed by DARPA’s Information Processing Techniques Office, with the stated aim of creating a permanent and searchable electronic diary of a person’s entire life. A dataset of their most personal information.

But would people willingly give up a record of their private lives to a military intelligence social media platform?

Probably not. Enter Facebook.

LifeLog, meanwhile, was ostensibly shut down. But this was not the first nor the last time that a project of this magnitude would be proposed.

In a 1945 article for The Atlantic, Vannevar Bush who directed the US Army's psychological operations during World War II, discussed his hypothetical project, The Memex, as a device “in which an individual stores all his books, records and communications, and which is mechanised so that it may be consulted with exceeding speed and flexibility."

In immortalising people's lives, it was hoped that LifeLog would eventually contribute to the emerging field of artificial intelligence (AI), that could one day think just like a human, intersecting with another DARPA backed project - the Personal Assistant That Learns (PAL) - a cognitive computing system designed to make military decision-making more efficient, which was eventually spun-off as Siri, the virtual assistant on Apple's operating system.

But LifeLog is just one part of the story. There was another DARPA program that also ‘disappeared’ one year before Facebook made its debut. Often cited as the precursor to Facebook. The Information Awareness Office (IAO) brought together several DARPA surveillance and information technology projects.

The stated aim of the IAO was to gather and store the personal information of every US citizen, including their personal emails, social networks, lifestyles, credit card records, phone calls, medical records, without, of course, the need for a search warrant. This information would funnel back to intelligence agencies, under the guise of predicting and preventing terrorist incidents before they happened. Reminiscent of Project Camelot’s early warning radar system for left wing revolutionaries.

Despite the government, apparently, abandoning their gambit for total information awareness over ordinary Americans, the core of the project survived.

I draw your attention to Palantir, the spooky data analytics firm founded by Facebook’s board member, Peter Thiel.

Despite being portrayed as science fiction in the firm Minority Report, Palantir’s predictive policing analytics have been deployed extensively against insurgents in Iraq and by police departments in the US.

This is, of course, nothing new for the Chinese. The convergence of big tech data analytics with social credits has been deployed for many years by the CCP to weed out and punish dissidents, who can find themselves held indefinitely in political re-education camps for holding the wrong set of political beliefs.

But it must also be accepted, these Orwellian methods of repression did not originate in China. The encroachment of the CIA onto the public sphere has been happening since the 1960’s, when the US imported decades of counterinsurgency from the soviet satellites to tackle the anti-war and civil rights movements. This was ramped up in the wake of 9/11. Now through the backdoor of COVID-19 total information awareness is coming home to roost, as China’s social credits system has been implemented on the back of the Green Pass.

Before anti-vaxxers and conspiracy theorists, you had civil rights and anti-war activists. The ideology guiding dissent may have changed, but the military tactics used to counter it remain the same.


If insurgency is defined as an organised political struggle by a hostile minority, attempting to seize power through revolutionary means, then counterinsurgency is the military doctrine historically used against non-state actors, that sets out to infiltrate and eradicate those movements.

As David Galula, a French commander who was an expert in counterinsurgency warfare during the Algerian War, emphasised:

“In any situation, whatever the cause, there will be an active minority for the cause, a neutral majority, and an active minority against the cause. The technique of power consists in relying on the favourable minority in order to rally the neutral majority and to neutralise or eliminate the hostile minority.”

Overtime, however, the intelligence state lost touch with reality, as the focus of its counterinsurgency programs shifted from foreign to domestic populations, from national security risks to ordinary citizens. Particularly in the wake of 9/11, when the NSA and its British counterpart, GCHQ, began mapping out the Internet.

Thanks to Edward Snowden’s revelations in 2013, we now know that the NSA were collecting 200 billion pieces of data every month, including the cell phone records, emails, web searches and live chats of more than 200 million ordinary Americans. This was extracted from the world's largest internet companies via a lesser-known, data mining program called Prism.

There’s another name for this, and its Total Information Awareness. What ceases to be worth the candle is that people’s right to privacy is enshrined under the US Constitution's fourth amendment.

Few understand how lockdowns are ripples on these troubled waters. Decades of counterinsurgency waged against one subset of society, branded insurgents for their Marxist ideals have, overtime, shifted to anyone holding anti-establishment views. The predictive policing of track and trace and the theory of asymptomatic transmission are the unwelcome repercussions of the intelligence state seeking total information awareness over its citizens.

Throughout COVID-19 anyone audacious enough to want to think for themselves or do their own research has had a target painted on their back. But according to the EU, one third of Europe is unvaccinated. This correlates precisely with David Galula’s theory of counterinsurgency, that suggests one third of society is the active minority ‘against the cause,’ who must be neutralised or eliminated.

When Domestic Populations Become the Battlefield

The use of counterinsurgency in the UK goes back to colonial India in the 1800s. According to historians, this is the first time the British government used methods of repression and social control against indigenous communities, audacious enough to want to liberate their homeland from Imperialist rule.

These tactics was deployed extensively during The Troubles in Northern Ireland against another anti-imperialist faction, also looking to liberate their homeland from The Crown.

Much of the lessons learned in Northern Ireland were later transferred into the everyday policing and criminal justice policies across mainland Britain. And it wasn't just dissenters who were targeted by these operations, it was anyone with left wing ideals, particularly trade unionists who, it could be argued, were conspiring with the Kremlin to overthrow parliamentary democracy.

I draw your attention to the spying and dirty tricks operations against the 1980s miners' strike. This continued right up until 2012, when the police and intelligence communities were implicated in a plot to blacklist construction industry workers deemed troublesome for their union views. The existence of a secret blacklist was first exposed in 2009, when investigators from the Information Commissioner's Office (ICO) raided an unassuming office in Droitwich, Worcestershire, and discovered an extensive database used by construction firms to vet and ultimately blacklist workers belonging to trade unions.

If you want to know what happened to the left, look no further than Project Camelot’s early warning radar system for left wing revolutionaries. Decades of infiltration has recalibrated the left into genuflections of establishment interests. It was the unions who scuppered the easing of lockdowns in the UK and consistently called on the Department of Education to postpone the reopening of schools.

From the infiltration of unions to the co-option of activism, a judge-led public enquiry in 2016 revealed 144 undercover police operations had infiltrated and spied on more than 1,000 political groups in long term deployments since 1968. With covert spymasters rising in the ranks to hold influential leadership positions, guiding policy and strategy, and in some cases, radicalising those movements from within to damage their reputation and weaken public support.

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How the West Was Won: Counterinsurgency, PSYOPS and the Military Origins of the Internet, Part I: Look a Gift Horse in the Mouth

As the digital revolution was underway in the mid-nineties, research departments at the CIA and NSA were developing programs to predict the usefulness of the world wide web as a tool for capturing what they dubbed “birds of a feather” formations. That's when flocks of sparrows make sudden movements together in rhythmical patterns.

They were particularly interested in how these principles would influence the way that people would eventually move together on the burgeoning internet: Would groups and communities move together in the same way as ‘birds of a feather, so that they could be tracked in an organised way? And if their movements could be indexed and recorded, could they be identified later by their digital fingerprints?

To answer these questions, the CIA and NSA established a series of initiatives called Massive Digital Data Systems (MDDS) to directly fund tech entrepreneurs through an inter-university disbursement program. Naming their first unclassified briefing for computer scientists ‘birds of a feather,’ which took place in San Jose in the spring of 1995.

Amongst the first grants provided by the MDDS program to capture the ‘birds of a feather’ theory towards building a massive digital library and indexing system - using the internet as its backbone - were dispersed to two Stanford University PHD’s, Sergey Brin and Larry Page, who were making significant headways in the development of web-page ranking technology that would track user movements online.

Those disbursements, together with $4.5 million in grants from a multi-agency consortium including NASA and DARPA, became the seed funding that was used to establish Google

Eventually MDDS was integrated into DARPA’s global eavesdropping and data-mining activities that would attempt total information awareness over US citizens. Few understand the extent to which Silicon Valley is the alter-ego of Pentagon-land, even fewer realise the impact this has had on the social sphere. But the story does not begin with Google, nor the military origins of the internet, it goes back much further in time, to the dawn of counterinsurgency and PSYOPs during the second world war.

The Dawn of PSYOPs

According to historian Joy Rhodes, a renowned physicist told U.S. defense secretary Robert McNamara in 1961:

“While World War I might have been considered the chemists’ war, and World War II was considered the physicists’ war, World War III . . . might well have to be considered the social scientists’ war.”

The intersection of social science and military intelligence is recognised by the US Army to have begun during WW1 when pre-war journalist Captain Blankenhorn established the Psychological Subsection in the War Department to coordinate combat propaganda.

These grey-area operations, as they become known, plateaued during world war II, when military strategists, building on wartime research in crowd psychology, drafted social scientists into the war effort through the Office of Scientific Research and Development (OSRD). The office would aggregate information about the German people and develop propaganda and psychological operations (PSYOPS) to lower their morale. This culminated in 1942, with the US federal government becoming the leading employer of psychologists in the US.

OSRD was an early administration of the Manhattan Project and responsible for important wartime developments in technology, including radar. The agency was Directed by engineer and inventor, Vannevar Bush - a key player in the history of computing, known for his work on The Memex, an early hypothetical computer device, that would store and index a user’s books, records and other information, and which would go on to inspire most major advancements in the development of personal computers over the next 70 years.

As the second world war ended and a new threat emerged from post war ravaged Europe, scholars and soldiers once again reunited to defeat an invisible and aggressively expansionist adversary.

Across the Soviet satellites in Europe and in the nations threatened by communism in Asia, Africa, and Latin America, cold war special operations, as they become known, were a nebulous category of military activity that included psychological and political warfare, guerrilla operations and counterinsurgency. To mobilise these ‘special warfare tactics’ the army established the Office of the Chief of Psychological Warfare (OCPW) in 1951, whose mission was to recruit, organise, equip, train, and provide doctrinal support to Psywarriors.

The office was directed by General Robert McClure, a founding father of psychological warfare and friend of the Shah of Iran, who was instrumental in the overthrow of Mohammad Mosaddegh in the 1953 Iranian coup d’état.

Integral to the projects of McClure’s OCPW, was a quasi-academic institution with a long history of military service called the Human Relations Area Files (HRAF). Founded by anthropologist turned FBI whistle-blower George Murdock, HRAF was set up to collect and standardise data on primitive cultures around the world. During WW2 its researchers worked hand in glove with naval intelligence to develop propaganda materials that would help the US liberate pacific nations from Japanese control. By 1954, the department had grown into an inter-university consortium of 16 academic institutions, funded by the army, CIA, and private philanthropies.

In 1954 the OCPW negotiated a contract with the HRAF to author a series of special warfare handbooks, disguised as scholarship, that sought to understand the intellectual and emotional character of strategically important people, particularly their thoughts, motivations and actions, with entire chapters compiled on the attitudes and subversive personality traits of foreign nationals, while other chapters focussed on the means of transmitting propaganda in each target nation, whether news, radio or word of mouth. This was, of course, decades before the internet.


In 1956, the Special Operations Research Office (SORO) emerged from these programs. Charged with managing the US Army’s psychological and unconventional warfare tactics during the cold war and taking the work of HRAF to the next level, SORO set about the monumental task of defining the political and social causes of Communist revolution, the laws governing social change and the theories of communication and persuasion that could be used to transform public perception.

SORO formed a central component of the Pentagons militarisation of social research, and particularly the ideas and doctrine that would usher in a gradual shift towards an American-led world order. Its research team was located on the campus of American University in Washington, D.C, and comprised the era’s pre-eminent intellectuals and academics. SORO’s ensemble team, from the fields of psychology, sociology and anthropology, would immerse themselves in social system theory, analysing the society and culture of numerous target countries, particularly in Latin America, while confronting the universal laws governing social behaviour and the mechanisms of communication and persuasion in each jurisdiction. If the US Army could understand the psychological factors that sparked revolution, they could, in theory, predict and intercept revolutions before they got off the ground.

SORO was part of a rapidly expanding nexus of federally Funded Research Centres (FCRC’s), that reoriented academia towards national security interests. Working at the intersection of science and the state, SORON’s, as they were known, advocated for an expert-directed democracy, regardless of the totalitarian consequences of social engineers and technocrats acquiring control over the thoughts, actions, and values of ordinary people.

In those early days of the cold war, academics and scientists working at the intersection of military and academia firmly believed that intellectuals should guide geopolitics. This was accepted as the most stable form of governance to take the free world into the next century. It explains how we have arrived under the rubric of the ‘settled science’ today. Or at least, policies masquerading as science. From the biosecurity state to the fundamentalism of climate science, much of what was achieved in those golden years of militarised social research shapes the twenty first century.

By 1962, sixty-six federally funded military research institutions were in operation. Between 1951 to 1967, the number tripled, while funding skyrocketed from $122 million to $1.6 billion.

But as opposition to the Vietnam War intensified in the 1960s, a growing number of intellectuals, policymakers and academics became increasingly concerned that the national security state was morphing into the statist, globalist force it had been fighting during the cold war and began publicly criticising Pentagon-funded social scientists as technocratic social engineers.

This inspired a wave of discontent for the militarisation of social research to grip America, culminating in 1969 with American University’s administrators banishing SORO from their campus and severing ties with their military partners. The move was endemic of the changing attitude towards these grey area special operations and resulted in the 1960’s and 1970’s with the excommunication of military research centres from university campuses across the US. A move that forced the military to look elsewhere - towards the private sector for their alternative warfare capabilities. Following a long tradition of public-private military cooperation, from the Rand Corporation to the Smithsonian Group, these quasi-private institutions were being spun-out of the military at a rate of knots since the 1940’s.

Project Camelot

One of the programs conceived by SORO was ‘Methods for Predicting and Influencing Social Change and Internal War Potential. Codenamed Project Camelot, the landmark program sought to understand the causes of social revolution and identify actions, within the realm of behavioural science, that could be taken to suppress insurrection. The goal, according to defence analyst, Joy Rhodes, was 'to build a radar system for left wing revolutionaries.' A sort of ‘computerised early warning system that could predict and prevent political movements before they ever got off the ground.’

‘This computer system’ writes Joy Rhodes, ‘could check up to date intelligence against a list of preconditions, and revolutions could be stopped before the instigators even knew they were headed down the path of revolution.’

The research collected by Project Camelot would produce predictive models of the revolutionary process and profile what social scientists deemed ‘revolutionary tendencies and traits.’ It was anticipated that such knowledge would not only help military leaders anticipate the trajectory of social change, but it would also enable them to design effective interventions that could, in theory, channel or suppress change in ways that were favourable to U.S. foreign policy interests.

It was intended that the information gathered by Project Camelot would funnel into a large ‘computerised database’ for forecasting, social engineering, and counterinsurgency, that could be tapped at any time by the military and intelligence community.

But the project was beleaguered by controversy when academics in South America discovered its military funding and imperialism motives.

The ensuing backlash resulted in Project Camelot being, ostensibly, shut down, though the core of its project survived.

Multiple military research projects picked up on Project Camelot’s ‘early warning radar system for left wing revolutionaries,’ while its computerised database for ‘forecasting, social engineering, and counterinsurgency’ went onto inspire a nascent technology that would be developed in the years to come, that would eventually become known to the world as the internet.

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How Bad Is Currency Debasement of the Dollar? (And Is There Anything We Can Do about It?)

04/02/2022Patrick Barron

Well, currency debasement is pretty bad, as a few key statistics will reveal, but first some background.

At the Bretton Woods Conference in 1944 the US agreed that it would redeem dollars for gold at $35 per ounce. If the US conducted a disciplined and honest monetary system, this would mean that the dollar was "as good as gold"; i.e., the US would not create more dollars unless it had gold to back them at the agreed upon rate. Foreign central banks could use the dollar as a proxy for gold in international settlements of trade, reducing the need for foreign central banks, many of whom had shipped their gold to the US during the war, to hold much actual gold bullion. Foreign central banks could simply hold dollars. If a foreign central bank built up more dollar reserves than it needed for trade settlement, it could present dollars to the US Treasury/Federal Reserve Bank and receive actual gold bullion at the agreed upon rate of $35 per ounce.

All appeared to go swimmingly until the French smelled a rat in the late 1960's. Both French President Charles de Gaulle and his finance minister Jacques Rueff were astute economists of the Austrian school. De Gaulle instructed the Bank of France to redeem eighty percent of its dollars for gold. The bank run was on! US gold reserves dwindled until the US had to make a choice and, yes, it did have a choice. The US could have devalued the dollar to require more dollars per ounce of gold and then adopted measures to reassure our allies and trading partners that it would be good stewards of the dollar thereafter. Instead, Nixon took the US completely off the gold standard in the fall of 1971.

The following table is instructive, both for what caused the run on the US gold reserves and the parameters of what the US could do now to stabilize the dollar and prevent its complete destruction:


















Between the end of World War II in 1945 and Nixon taking the US off the gold standard in 1971 the amount of gold held by the Treasury/Fed halved and both the monetary base and M1 doubled. This was enough to end the charade that the US had been a good steward of the international monetary system based upon the "good-as-gold" dollar at $35 per ounce.

But in hindsight the US's monetary stewardship in the quarter century from the end of the war until the end of the gold standard appears as one of integrity, honesty, etc. compared to what has happened since. The amount of gold held by the Treasury/Fed has shrunk somewhat, but we really don't know if it really is there, since there has not been a physical audit of the nation's gold for many decades. What's truly shocking is the expansion of both base money and the money stock in the fifty years of pure fiat money. The monetary base has increased by seventy-three (73) times its 1971 level. The money stock has increased by ninety-one (91) times. There is no reason to believe that the money expansion machine will stop or even slow down. In fact it may speed up. Just consider what the current administration, supported by a majority in Congress, wish to spend--infrastructure bill, build-back-better bill, an increase for the military (of course!), more stimulus checks to help people pay for their increased energy bills. There is no budgetary discipline. Nevertheless, if government will not instill discipline, markets will. The dollar will collapse into worthlessness.

Is There Anything We Can Do about It?

But there is an alternative. Despite the huge ratio of dollars to gold, the US could still tie the dollar to its gold supply. Per Ludwig von Mises in Omnipotent Government:

Every nation, whether rich or poor, powerful or feeble, can at any hour once again adopt the gold standard.

It would have to set up an independent agency to oversee the absolute right that anyone could redeem dollars for gold at the new higher exchange rate. The Fed would have to be phased out, especially its monetary meddling operation by which it sets interest rates and monetizes government debt. The federal government would have to balance its budget, but it can be done. In fact it has been done. Germany ended its post-World War I hyperinflation by issuing a new currency and slashing its federal budget. If the Germans can do it after a humiliating defeat in war and after suffering the horrible terms of the Versailles Treaty, the US can do it in the absence of such conditions. Per Ludwig von Mises, in “Economic Freedom and Interventionism”:

The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity. 

The solution is simple even if politically difficult. In 1953 Ludwig von Mises added Part Four, titled "Monetary Reconstruction", to his 1912 masterpiece The Theory of Money and Credit. Part Four contained three chapters, the final of which is titled "The Return to Sound Money". In this short chapter Mises laid out a simple plan by which any nation, although he specifically mentioned the United States, can return to sound money; i.e., a gold backed currency. The fact that the US has greatly inflated its money stock since 1953 does not change the mechanism by which a gold-backed dollar can be reinstated or the benefit of doing so. Time is running out, though. It may well be impossible to do after the world starts abandoning the dollar.

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Harmonizing to Each His Own

03/28/2022Gary Galles

Changes often induce fear--including the fear that some aspect of our current well-being will be eroded due to changes that could take place in markets. For instance, the invention of a lower cost way of providing a service I now offer could lower what I now earn. The potential that we might be harmed by such changes can make us very risk averse.

However, without change, there can be no new ideas, no innovations, no improvement, no growth. So trying to stop threatening changes to lock in our well-being in our current circumstances can turn us into modern day Luddites. But that undermines the process that has provided most of the benefits we have come to enjoy--all of which required improvements in our options--and which will benefit us in the future as well, providing that all arrangements are voluntary, increasing our economic security.

Such fear is a major motive force behind all forms of protectionism--against domestic rivals, international rivals, potential entrants to our industry, potential new ways of doing things, new techniques, new products, etc. We are all subject to the lure of limiting others’ rights and freedoms to lock in our current advantages.

However, that would be unjust. Allowing some to pre-empt others’ rights would also make every one of us who would ever be such an “other” worse off, since it would undermine the crucial protections offered by property rights--when property rights are enforced, exchanges must be voluntary to all those whose rights are involved.

Leonard Read compared the results of freeing people to seek out and offer every improvement they can in willing arrangements versus trying to freeze out such potential improvements, in his “Harmonizing to Each His Own,” in his 1972 To Free or Freeze: That is the Question. And unlike all the government favor seekers in the world, who as Henry Hazlitt put it, hire “the best buyable minds” to argue that those favors for them at others’ expense are good for all of us, Read laid out why freedom for all, subject to the need to respect others’ rights, is better than favor seeking by all, a melee for who can “win” the competition to restrict others more than they can restrict you. On the 50-year anniversary of Read’s book, consider some of the wisdom we can glean on the subject.

Man could not live, let alone improve his lot, were all static…Change releases the hidden strength of men. Out of change comes variation and in this diversity are unique potentialities realized. Creative dissimilarities emerge and account for our moral, spiritual, intellectual, and material wealth. Change is of the very essence of life, and freedom to change is both an economic and a biologic necessity.

[However] most persons tend to dislike it…inevitable and necessary but, nonetheless, much resented. This feature of human nature…substantially accounts for the continuing debate over freedom versus coercive collectivism.

The main reason for resenting change…originates in a misunderstanding of how security is best obtained.

Individuals, with rare exceptions, are interested first and foremost in securing life and livelihood. Security is indeed an objective but, contrary to general belief, it is never more than a dividend of natural change and variation--each pursuing his own uniqueness. There is no security to be found in bringing change and variation to a halt; nothing is so at odds with security as freezing…the status quo.

Seek first security and there will be neither security nor change. Seek first the dynamic, improving life and such security as is possible is thrown in as a rewarding outcome.

However, to many, allowing each of us the freedom to direct our own creative and value-creating efforts sounds like chaos, which requires someone to be in charge to prevent feared meltdown, when it is actually a means to mutually beneficial harmony.

[There have been] countless attempts at harmonizing our variations…Not only is there myself to cope with: to grow, emerge, evolve, to become what I am not yet; equally challenging, I must find out how to live in harmony with my fellowmen. My life and welfare depend not only on what I make of me but also on how I associate myself with others upon whom I am also rigorously dependent, a dependence from which there is no escape. Except in association, I perish!

There are, broadly, two opposed theories as to how the sociological maelstrom should be resolved. The first--authoritarian--is steeped in tradition, as aged as humanity, and presently gaining ground all over the world. It is the old, old master-slave arrangement that has always stifled human progress and diverted man’s efforts to fighting, either to force his will on others or to combat the tyrant’s army. The second--freedom--is brand new as history goes, all too seldom understood or accepted.

The authoritarian vision is limited and blurred at best.

What then must be the outcome of the authoritarian’s solution to social problems, assuming that his will is invoked? Simple: all of us compelled to abide by what he sees…which, of course, is next to nothing. All of us, if his will prevails, restricted by his oblique view of reality.

Here, Read makes sure we realize the cost of authoritarian “solutions,” is far greater than any imagined benefit.

All that is good--no exception--springs from creative human energy obeying its nature, that is, freely flowing when not squelched.

Only a person deficient in reasoning powers…could possibly believe that any scheme can “bring us out where we want to be.” This is an I posing as we--absurd! The flowering society, the only kind that merits our interest, is one that will not stand in the way of bringing you out where you want to be, while permitting the same opportunities for everyone else. And this is definitely a prospect when millions--yes, trillions--of decisions are made independently of each other, that is, a situation in which freedom of choice prevails.

Instead of chaos there is order and stability--an incomprehensible harmony.

What at first blush appears as utter chaos…turns out to be precisely the opposite: a harmonic whole in the absence of I’s trying to play we. You to your knitting, me to mine, each pursuing his unique potential…For only in this manner am I able to draw on your and everyone else’s unique realizations, others possessing countless ideas, enlightenments, goods, services hardly any one of which is within my own potential. When freedom prevails, we can think of our situation as a vast human grid, supplies responding to demands in a perpetual willing exchange. A harmonizing of to each his own!

Finally, Leonard Read reminds us that understanding freedom provides cognitive therapy for the unfounded fear of change that leads to support for usurpers of freedom whose insufficient abilities (despite their delusions of competence) actually harm us all.

We need only know that freedom does work wonders--the evidence is commonplace and all about us--and that freedom exists in the absence of man-concocted restraints against the release of creative energy. And observe how simple--and realistic--this is: it does not presuppose a single know-it-all!

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How Economic Sanctions against Russia Could Backfire

03/01/2022Mike Maharrey

Economic sanctions serve as a powerful foreign policy tool for the US government. But could this ultimately backfire on the US?

Over the last several years, many countries have made a concerted effort to limit dependence on the US dollar. The economic warfare waged against Russia reveals exactly why.

The US hit Russia with a round of economic sanctions after Russian President Vladimir Putin recognized two breakaway republics in Ukraine and announced he would send troops into those regions. President Biden announced additional sanctions after Russia invaded Ukraine.

Peter Schiff recently explained how US sanctions against Russia could harm the US economy in the short-run and cause even more inflation. But there are also possible long-term consequences for using the dollar as a tool for war. It could accelerate de-dollarization globally and even threaten the dollar’s role as the world’s reserve currency.

The US is a global superpower and maintains an aggressive foreign policy. But the US doesn’t only project power across the globe through its massive military. It also weaponizes the US dollar, using its economic dominance and its privilege as the issuer of the global reserve currency in a carrot-stick tool of foreign policy.

The US government showers billions of dollars in foreign aid to “friends.” On the other hand, “enemies” can find themselves locked out of SWIFT, the global financial system that the US effectively controls using the dollar.

This is the nuclear option when it comes to economic warfare.

Initially, the US said it would not lock Russia out of SWIFT, but a few days later, the US, the EU, the United Kingdom and Canada issued a joint statement saying “selected” Russian banks would be disconnected from the global payment system: “This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.”

Think of this as a tactical nuclear strike.

SWIFT  stands for the Society for Worldwide Interbank Financial Telecommunication. The system enables financial institutions to send and receive information about financial transactions in a secure, standardized environment. Since the dollar serves as the world reserve currency, SWIFT facilitates the international dollar system.

SWIFT and dollar dominance gives the US a great deal of leverage over other countries.

The US has used the system as a stick before. In 2014 and 2015, the Obama administration blocked several Russian banks from SWIFT as relations between the two countries deteriorated. Under Trump, the US threatened to lock China out of the dollar system if it failed to follow UN sanctions on North Korea. Treasury Secretary Steven Mnuchin threatened this economic nuclear option during a conference broadcast on CNBC.

If China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the US and international dollar system, and that’s quite meaningful.

Locking a country completely out of SWIFT would effectively cut it off economically from the world. But there would also be consequences that ripple through other economies. For instance, a member of the Russian parliament warned locking his country completely out of SWIFT would halt the flow of goods into Europe.

If Russia is disconnected from SWIFT, then we will not receive [foreign] currency, but buyers, European countries in the first place, will not receive our goods—oil, gas, metals and other important components.

Given America’s history of using sanctions as a foreign policy tool, Russia wasn’t unprepared for the move. In fact, A number of countries that know they could easily find themselves in the crosshairs have taken steps to limit their dependence on the dollar and have even been working to establish alternative payment systems. This includes Russia, China and Iran.

Russia developed its own payment system for internal use several years ago. According to the Central Bank of Russia, 416 Russian companies and government organizations had joined the System for Transfer of Financial Messages (SPFS) as of September 2018.

A growing number of central banks have also been buying gold as a way to diversify their holdings away from the greenback.

Before ending its purchase program at the onset of the COVID pandemic, Russia was the biggest central bank buyer of gold. The Central Bank of Russia bought $4.3 billion worth of the yellow metal between June 2019 and June 2020. And the Russians were buying gold long before that. The Central Bank of Russia bought gold every month from March 2015. According to Bloomberg, “Russia spent more than $40 billion building a war chest of gold over the past five years, making it the world’s biggest buyer.”

Meanwhile, the Russian central bank was aggressively divesting itself of US Treasuries. Russia sold off nearly half of its US debt in April 2018 alone, dumping $47.4 billion of its $96.1 billion in US Treasuries.

It’s not just America’s “enemies” who are worried about the US abusing its economic power. Her friends are also wary, as they should be.

After Donald Trump pulled the US out of the Iran nuclear deal,  the EU announced the creation of a special payment channel to circumvent US economic sanctions and facilitate trade with Iran. EU foreign policy chief Federica Mogherini made the announcement after a meeting with foreign ministers from Britain, France, Germany, Russia, China and Iran. She said the new payment channel would allow companies to preserve oil and other business deals with Iran.

This underscores a risk to the US. Economic sanction policies could also have long-run consequences, eventually undermining the dollar as the world reserve currency.

Peter Schiff warned that other countries are watching how the US handles its power as the issuer of the global reserve currency during the Russian-Ukraine war.

China is looking on thinking, well, Russia is doing something America doesn’t want. They’re getting sanctioned. What if we do something that America doesn’t want? We get sanctioned. They pull the dollar out from under us. Let’s get out from under the dollar on our own. Let’s not leave this weapon in the hands of the US that can be turned against us at any time.

This could create a significant problem for the United State. The dollar remains the reserve currency because countries like China warehouse dollars as a reserve asset. This props up the value of the dollar.

This scares a lot of the world into recognizing that they have entrusted the US with a power that could be misused against them. And I think this type of situation is going to hasten the demise of the dollar’s status as the reserve currency.

If enough countries abandon the dollar, the value of the US currency would collapse and create economic chaos here at home. The de-dollarization of the world economy would likely perpetuate a currency crisis in the United States.  Practically speaking, it would likely lead to hyperinflation.

Meanwhile, the US government should be wary of throwing its economic weight around too glibly. It isn’t the only country with an economic nuclear option. China ranks as the largest foreign holder of US debt. If the Chinese were to dump a significant amount of US Treasuries, it would collapse the bond market and make it impossible for the US to finance its massive debt.

America’s undeclared wars have cost trillions of dollars. And economic sanctions are an act of war.

Most people view economic sanctions as an acceptable alternative to military force. But economic warfare also comes at a cost. It’s typically not the sanctioned government that suffers. It’s the innocent people living in that country that must cope with shortages and increasing prices.

As James Madison said, “Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other.”

War always comes at a steep cost—whether military or economic.

This article originally appeared at Schiffgold.

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How Regulations Are Like Taxes

02/01/2022Leonel Regalado

Commonly, in Industrial Organization college classes it is taught how the market may end up having a non-efficient or non-competitive outcome. For example, a firm taking most of a market, which is considered to be a non-efficient outcome because the firm has power to cut the so-called “consumer surplus” and expand their “producer surplus”. Making decisions based on these “surpluses” is problematic because there is no measure of the value a consumer attaches to a certain object. (1) The level of assumptions needed to make these calculations takes the mainstream line of economics further from reality. Usually, the kind of solution proposed by these economists for non-efficient outcomes is regulating the market, to protect the consumer, and “guarantee efficiency and competition”.

These ever-growing regulations on the markets of different industries tend to reduce competition, acting a barrier of entry for new firms. As Mises put it:

            “[…] today taxes (regulations) often absorb the greater part of the newcomer's “excessive” profits. He cannot accumulate capital; he cannot expand his own business; he will never become big business and a match for the vested interests. The old firms do not need to fear his competition; they are sheltered by the tax collector.” (2) (Parenthesis added).

This statement does not only apply to taxes, but also to regulations: as a market becomes more regulated, firms will have to spend more time, money and resources complying with these new regulations. Adding more regulations to an industry is then, a way of taxing that industry, because the firms’ excessive profits will be diminished by having to comply with the new regulations.

So-called “experts” will try to sell their initiatives as scientific, exact, and fine-tuned actions, that will have zero external effects, experience has taught us how this is not true, multiple times. Mainstream-line economists tend not to take the regulatory costs mentioned above into account: as government officials, they don’t usually consider the complete range of effects that their actions have, something that was signaled by Bastiat centuries ago, yet we’re still fighting with it.

How, then, does this restrict competition?

When an industry becomes over-regulated, which is the case for most industries that reach millions of consumers, the costs of complying with the regulations already in place for newcomers becomes enormous. Therefore, the regulatory costs imposed on the firms is big enough to act as a barrier of entry: the initial investment is higher than it would’ve been in the absence of the regulations, which seriously affects the profitability of lots of firms.

For already established firms, which have a good portion of the industry’s market share, these regulations come at a relatively low cost: they’ve already accumulated capital before the regulations were in place, and so these new regulations would have a small negative effect on their financial statements. The opposite happens for newcomers: they practically don’t have a market share, as they just got into the industry, so the regulatory compliance will be a relatively high portion of their overall costs, eating up the profitability of the firm.

The overall result of this is the following: existing firms will have a more protected position, as the possibility of having new competitors is reduced. If the uncertainty of their position in the market is small enough, they’ll stop worrying about the customers, and will tend to stick to the minimum standards established by the regulations: The industry’s market would be de facto managed by the government, as it has created monopolies by putting up barriers of entry, and if any new changes happen in these industries, it’s going to happen via government mandates.

The next time you listen to a politician proposing a bill or initiative to “protect the consumer”, think about the “unseen”, and be skeptical about the outcomes they promise. Regulations to make markets “better” act as barriers of entry for new firms. These have destroyed competition in the last century, as the size and scope of government bureaucracy has expanded beyond the limits anyone could have imagined. We’re on our way to a state-run economy, just like Mises said on his famous text “The Middle of the Road Leads to Socialism”. (3)

(1) Rothbard, M. 1962. Man, Economy and State. Chapter 4: Prices and Consumption. Part 4: The Gains from Exchange.

(2) Von Mises, L. 1966. Human Action: A treatise on economics. Chapter XXII: Confiscation and Redistribution.

(3) Von Mises, L. 1952. The Middle of the Road Leads to Socialism. Planning for Freedom and Sixteen other Essays and Addresses.

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How the Feds Broke the Meat Industry

Government breaks things. Then it often rides in on a white horse promising to “fix” the very things it broke.

In the latest example of government claiming it will solve a problem it created to begin with, President Joe Biden has committed to fixing the rising cost of meat.

Overall, meat prices have climbed 16 percent over the last year. Beef prices are up 20.9 percent. Biden says the problem is a lack of competition in the meatpacking industry.

“Capitalism without competition isn’t capitalism—it’s exploitation,” Biden said.

According to a factsheet released by the Biden administration, four processing companies control 85 percent of the beef market. The largest four firms control 70 percent of the pork market and 54 percent of the poultry market.

The Biden plan is to distribute $1 billion in coronavirus relief funds to help independent meatpackers expand their businesses. According to the AP, the plan would also allocate funding to train workers in the industry and improve conditions. The administration would also  issue new rules for meatpackers and labeling requirements for being designated a “Product of USA.”

But a question remains—how did a few big corporations come to dominate the meatpacking industry? Biden and other supporters of federal intervention into the economy would have you believe it’s just the inevitable march of capitalism. Greedy corporations get bigger and bigger and swallow up the “little guy.” If you believe this narrative, high meat prices stem from corporate greed and the inherent evils of the free market.

But it wasn’t “capitalism” or the greedy corporations that caused this consolidation in the meatpacking industry. It was the federal government.

Congress broke the meat supply chain decades ago.

The Wholesome Meat Act of 1967 mandates meat must be slaughtered and processed at a federally inspected slaughterhouse, or in a facility inspected in a state with meat inspection laws at least as strict as federal requirements. Small processors found it difficult if not impossible to meet the federal requirements. The cost was simply too high. Of course, large corporations can bear regulatory costs. As a result, the meat processing industry went through massive consolidation after the enaction of this act.

Since the passage of the Wholesome Meat Act,  the number of slaughterhouses dropped from more than 10,000 to 2,766 in 2019. Today, instead of hundreds of companies processing meat, three corporations control virtually the entire industry.

Federal law also prohibits the interstate sale of custom processed meat—meat from an animal slaughtered and processed at a facility where an inspector is not required to be present to observe the slaughtering and conduct an ante mortem and post mortem inspection of the animal.

We constantly hear about supply chain issues due to the coronavirus pandemic. (More accurately, government response to the pandemic.) But the lack of adequate processing capacity due to consolidation was already causing supply issues back in 2015. A report by the Farm-to-Consumer Legal Defense Fund sounded the warning at that time.

“The bottleneck caused by the lack of slaughterhouses has frustrated small livestock operations in getting their products to market and has led to an inability to meet the overall demand for locally produced meat. The 1967 Act has been one of the worst laws ever passed for local food; what’s more, it was known from the beginning that the Act would have the effect it did.”

The impact on small meat processing businesses was apparent within years of the passage of the act. In 1971, the Small Business Administration (SBA) presented a paper to the United States Senate Select Committee on Small Business titled: “The Effects of the Wholesome Meat Act of 1967 upon Small Business—A Study of One Industry’s Economic Problems Resulting from Environmental-Consumer Legislation Prepared by the Small Business Administration.”  The paper warned that the cost of compliance would have adverse impacts on small-scale slaughterhouses and packing plants, saying “the Wholesome Meat Act was as much of a disaster for many small meat firms as a hurricane.”

[T]he meat industries are among the more competitive in the American economy. But the Wholesome Meat Act could lead to a significant diminution of competition. How many firms would have to shut down because they could no longer compete due to the new law? … Would the Wholesome Act lead, however unwittingly, to an undesirable increase in concentration in the meat industries? Questions such as these, highly fundamental questions, were barely raised during the legislative process.

It comes as no surprise that these regulations caused a massive consolidation of the meat processing industry. And it’s no surprise that this consolidation has led to supply chain breakdowns. Centralized systems are brittle systems. They lack redundancy. They lack escape valves. They are prone to fail under stress. This is true of supply chains, economies and governments.

In other words, this was entirely predictable.

But now Biden wants to fix what the federal government broke by throwing more money at it.

Here’s an idea: why not just do away with federal control?

Supporters of federal intervention will scream “Safety!” But if the Wholesome Meat Act was really about food safety, it doesn’t even deliver on its own terms.

By concentrating meat processing in relatively few facilities, the likelihood of widespread contamination increases. A single sick cow can infect thousands of pounds of beef in one of these corporate slaughterhouses. In a more diversified, decentralized system, outbreaks generally remain limited to small regions. Farm-to-Consumer Legal Defense report said, “The Wholesome Meat Act has not led to the production of safer meat today; there are more recalls than ever for positive pathogen tests in meat products.” You seldom saw nationwide recalls in the era of diversified meat processing.

More generally, states with “food freedom” laws that allow small producers to sell food outside of the established regulatory structure have not seen increases in foodborne illnesses. According to Forbes, representatives from health departments in Wyoming, North Dakota and Utah reported exactly zero outbreaks of foodborne illnesses connected to a business operating under a food freedom law. Meanwhile, “Last year, the Centers for Disease Control and Prevention investigated and advised the public on 24 multistate outbreaks of foodborne illness, the highest in over a decade, with federally regulated romaine lettuce, chicken salad, and even Honey Smacks Cereal all linked to outbreaks that hospitalized Americans.”

In a sense, Biden is correct—the U.S. needs more players in the meat industry. But the government created the problem and there is zero self-reflection or ownership of responsibility. Only promises to fix what the feds already broke.

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How Lincoln Dealt with "Draft Dodgers" and Other Dissenters

11/30/2021Ryan McMaken

Mises.org reader Brad Cole writes:

A great-great-grandfather Montgomery Cole, got imprisoned during the Civil War because of speaking out against the draft policies. His arrest, along with others, resulted from President Lincoln's invoking his Proclamation 94 in September of 1862. 

As for a bit of background, Montgomery Cole was 39 years old when arrested. He was married with six children (my great-grandfather came along two years after the Civil War) and nearly 100 acres of fields and livestock to work. He had registered correctly for the draft and was legally excused by furnishing a substitute. Scanned copies of his draft documents are below.

President Lincoln's Proclamation enabled Montgomery Cole's arrest by suspending the writ of habeas corpus during the War—no charges necessary for an arrest. In short, Grandfather Cole and other Democrats in the rural part of the northeastern Pennsylvania (Columbia County) area believed that the prolonged War, particularly the draft, caused disproportionate hardships on northern Columbia County, Pennsylvania's people, and their families. The men were undoubtedly not Confederate sympathizers. However, he and the others arrested got accused by Republicans of discouraging volunteer enlistments and criticizing the draft policies.

Many of today's citizens don't know—or care—that in 1864 Lincoln was not necessarily the favored candidate for all. In Columbia County, that was certainly the case. Democrat rival, General George McClellan, carried every district in the County except for the Town of Bloomsburg, Catawissa, and Berwick. The farming communities voted overwhelmingly for McClellan. The vote tally in the County was 3,367 for McClellan and 1,914 for Lincoln. 

The horrible injustice of military arrest without charges and imprisonment of Cole and his fellow Democrats got named the "Fishing Creek Confederacy"—catchy name but a misnomer. To boil down a complicated story to its essence, it was the wrongful treatment of men who were otherwise upstanding community members.

Montgomery Cole's release and the Oath of Allegiance he signed are also in my possession (attached with draft documents). It is moving to hold the papers in my hand and imagine what being arrested and imprisoned without charges was like for him and the other Columbia County men. Shortly after the War's end, Cole was elected a County Commissioner and served from 1866 to 1869. He died of Tuberculosis, known then as consumption, at the young age of 51 in 1877.

As an aside, I turned 18 two years before the draft during the Vietnam War got abolished. Thankfully, I did not have to face getting drafted to head off to an unpopular war by then.


Sep. 24, 1862 proclamation by President Abraham Lincoln:

A Proclamation

Whereas, it has become necessary to call into service not only volunteers but also portions of the militia of the States by draft in order to suppress the insurrection existing in the United States, and disloyal persons are not adequately restrained by the ordinary processes of law from hindering this measure and from giving aid and comfort in various ways to the insurrection;

Now, therefore, be it ordered, first, that during the existing insurrection and as a necessary measure for suppressing the same, all Rebels and Insurgents, their aiders and abettors within the United States, and all persons discouraging volunteer enlistments, resisting militia drafts, or guilty of any disloyal practice, affording aid and comfort to Rebels against the authority of United States, shall be subject to martial law and liable to trial and punishment by Courts Martial or Military Commission:

Second. That the Writ of Habeas Corpus is suspended in respect to all persons arrested, or who are now, or hereafter during the rebellion shall be, imprisoned in any fort, camp, arsenal, military prison, or other place of confinement by any military authority of by the sentence of any Court Martial or Military Commission.

In witness whereof, I have hereunto set my hand, and caused the seal of the United States to be affixed.

Done at the City of Washington this twenty fourth day of September, in the year of our Lord one thousand eight hundred and sixty-two, and of the Independence of the United States the 87th.

Abraham Lincoln



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