Power & Market

The Association of Southeast Asian Nations, or ASEAN for short, does not seem to usually draw much attention in modern global media. This is despite the ASEAN having a total population bigger than that of the United States or even the entire European Union, and that the resources of its ten members combined make it one of the largest economies in the world. Constantly overshadowed by the rapid economic growth in China and India, or perhaps even the development issues in Africa, the ASEAN looks to be off the radar to most, which is a shame.

The most news from the region that might appear in international headlines this year is about the coup in Burma, a condemnable humanitarian disaster that exemplifies the sheer brutality a state could potentially inflict on its own citizens. In a rather rare political consensus between member states—rare in the sense that ASEAN members, as a matter of principle, do not generally meddle in each other’s internal affairs—ASEAN leaders called for an end to this violence.

However, economic and development issues in Southeast Asia go well beyond the ongoing military rule in Burma, even as Zachary Yost wrote about how the United States incoherently fights for democracy there. This article will look into some of the challenges that the ASEAN members face which continue to hinder growth and development from flourishing in the region, and posits that free market economics can alleviate and even solve these issues if harmful politics are removed first.

History and Economy

Like other regional blocs, the ASEAN came to be from a particular context. Interestingly, when its founding five members signed the Bangkok Declaration in 1967, one noble principle of the ASEAN's establishment was to act as a galvanized force against the rapid spread of communism, aside from fostering peace and prosperity among all its members. Indonesia, Malaysia, the Philippines, Singapore, and Thailand took these steps in the joint interest of containing China as well.

That was the time of the Cold War, after all, and Burma, Cambodia, Laos, and Vietnam, which would eventually become members, were particularly vulnerable to the communist ideology. The latter two states have dominant political parties that are still regrettably endorsing it to this day, but this also comes across as strange and inconsistent, considering that they also participate in the ASEAN free trade area along with the rest of the members. It could have been worse: without trade agreements, these states might have closed off their economies completely.

A common respect for individual sovereignty through the noninterference policy on local matters prevents the ASEAN member states from directly prying into each other’s policies. It also helps that, in comparison to the massive staff of, say, the European Commission in Brussels, which acts as the executive branch of the European Union, the ASEAN Secretariat in Jakarta is relatively small, and consequently allows the bloc freedom to continue acting as independent and self-determining states.

Thus, historically and economically speaking, the ASEAN is conceptually and theoretically a good thing: a promoter of free trade, a bulwark against communism, and a mostly decentralized regional body that coordinates the economies of member states without political imposition. In practice, though, some of the bigger problems faced by the ASEAN come from beyond an economic scope.

Disasters, Diseases, and Democratic Deficits

Lipton Matthews wrote about how Africa’s geography is a factor to consider in its lack of growth, and the same insight applies to countries in Southeast Asia as well. Indeed, geography is one of those things that could potentially stifle a country’s economic growth, setting it at a disadvantage through no fault of its people. It is hard to develop economically when setbacks in the form of natural calamities happen practically every year, as is the case with ASEAN countries.

However, the existence of developed yet landlocked countries in the world, such as Austria or Switzerland, proves that unfavorable geography can be overcome, and Singapore among the ASEAN states also demonstrates that tropical countries near or within the Pacific Ring of Fire—even while prone to catastrophes and disasters such as typhoons, earthquakes, and tsunamis—can also rise and become wealthy through the promotion of a robust and open economy.

While developing functioning and efficient societies and markets can potentially offset geographical issues, political problems pose a far more complex threat. Of concern is the perceived deterioration of democracy among ASEAN states, something that has been sadly exacerbated by strict lockdown policies imposed by their respective governments since 2020, under the argument of curbing the spread of the horrible disease that is COVID-19.

Aside from the dire situation in Burma—which can be regarded as symptomatic of regional democratic decline—fellow nations such as Cambodia, Indonesia, Malaysia, the Philippines, and Thailand are either on the verge of or already under authoritarian and illiberal rule. Storms and other nature-based phenomena are troublesome, for sure, but systemic issues within governments are an entirely different beast altogether.

In theory, the ASEAN could make great strides in showing the world that it is possible to have a free trade area that fosters peace and stability while also allowing each member to decide their destiny. This vision for the ASEAN is, in practice, marred by issues, such as violations of human rights, that critics often use to argue for more political intervention, not less. However, as we see with the European Union, political unions also create issues in the long run.

Deplorable as some political crises in the area have become, multiple wrongs do not make a right: rather, the ASEAN members should recognize that moving forward with their economies means earnest cooperation through both stable democracies and free markets. Economics and peace should go hand in hand, and a common desire for growth and development for the total population of over 600 million people should begin by putting individuals—and their rights—at the forefront.

Conclusion

While the ASEAN might be a good example of politically decentralized economic integration, humanitarian issues faced by its member states threaten to destabilize the development of the entire region. If the individual ASEAN states cannot overcome their respective woes, the bloc will likely continue to struggle with development troubles, all while continuing to go largely unnoticed on the global stage.

Sociologist Mike Savage’s new book, The Return of Inequalilty, is the latest in a long line of unsuccessful attempts to demonize and eliminate inequality. James R. Rogers provides an interesting and useful discussion of it in his review, “Is Inequality a Problem?” on the Law and Liberty website. But what I was most struck by was the picture shown for the story, showing a placard saying “Capitalism Thrives on Inequality,” followed by five exclamation points.

The placard’s “theory” does a pretty good job of providing a nutshell summary of the line of thought being promoted: capitalism causes inequality, which harms us, and that result that could be avoided by substituting some other system. However, that represents serious distortion rather than serious diagnosis. We are all different (which virtually everyone seems to accept, until it is demonized as inequality). No system avoids that universal truth. Further, capitalism (I prefer “a private property–based system of voluntary arrangements”) is the most effective means ever discovered to turn the fact of our differences into gains for all of society.

In fact, one of the best rebuttals of Savage’s book predates it by decades. It comes in Leonard Read’s “Inequality Enshrined,” chapter 14 in his 1974 Having My Way. Put it into a similar nutshell, Read argues that some forms of equality are inconsistent with more important forms, as when equality of results rationalizes unequal treatment, rather than the equal treatment that is the ideal of liberty. Further, some inequalities are inseparable from crucial social benefits, as the massive joint gains from specialization among people with differing abilities coordinated through voluntary market arrangements.

Read’s thoughts merit remembering.

• Books, speeches, expressed yearnings … have much to say in favor of equality … [but] inequality exists, fortunately!
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• We have here a semantic trap…. Once we accept the idea that all men are equal before God, we [may] think of equality as … a condition to be sought … a dangerous notion, completely at odds with reality.
• What this affirmation is intended to convey, really, is that all men are subject to the Universal Laws indiscriminately; there are no favorites; there is a common across-the-board justice. With this in mind … reflect on the distinction between common justice and equality.
• The ideal civil law … is unbiased as to who or what we are…. Civil laws … intelligently drawn—are indiscriminate; they confer no special privilege on anyone … their hallmark being a common justice.
• We are—one as much as another—beneficiaries of fairness and justice.
• We have equal rights … provided “rights” are properly defined and circumscribed. Any person … has as much right to life, livelihood, liberty as any other—provided his actions are peaceful, that is, noncoercive … when thus circumscribed, the equal rights concept makes no claim on any other person; it is, instead, an appeal to reason, morality, justice.
• Most people put no such boundaries on “equal rights.” Blind to the rational limitations of this concept, they are carried away with “equality” and demand equal pay, rights to a job … mere wishes are thought of as rights.
• These demands for equality, beyond the rational boundary … rob selected Peter to pay collective Paul—feathering the nests of some at the expense of others.
• Freedom and equality are … mutually antagonistic. The equality idea … rests on the antithesis of freedom: raw coercion. It is … impossible to be free when equality is politically manipulated.
• We come, finally, to the economic case for inequality. Not our likenesses, but our differences, give rise to the division of labor and the complex market processes of production and trade … it is to our advantage to specialize and to trade with other specialists.
• By thus serving others—and becoming ever more skilled and outstanding (unequal) in the process—he best serves his own interest.
• This comparative advantage in trading, which rewards the most renowned specialist, also rewards in similar fashion every other party … each gains from the trade … each finds a comparative advantage in trading—if it is voluntary.
• Not only does this blessing of inequality flow from the mental or physical skills of traders; it also pertains to the capital, the tools of the trade, the savings and investments by individuals. The specialist who saves and develops tools becomes ever more specialized and efficient. And it is to the advantage of every participant in the market to encourage the saver and investor by respecting and protecting his property—even though the result is greater inequality of wealth than before.
• The procedure is to cultivate and accentuate their differences in skills and in private ownership and use of property—these being the requisites for a flourishing and beneficial trade.
• Sadly, the misunderstanding and misapplication of the concept of “equality” affords a major explanation for the leveling programs … in the world today.
• [Embrace] this fact of Nature—inequality—and, also, its working handmaiden: human freedom … permit anyone to do anything he chooses so long as it is peaceful.

Leonard Read saw common justice—the form of equality necessary for individual liberty and social cooperation—being crowded out by attempts to impose more equal results, which jeopardizes the vast gains from our differences (inequalities), developed and used on behalf of others through voluntary market arrangements. Those are crucial lessons to learn if we wish to revive common justice, now widely violated, and expand the mutual blessings made possible only by our differences, which are undermined when they are erroneously defamed as unjust inequalities.

As the face of the organization, Federal Reserve Chair Jerome Powell should bear the brunt of anyone’s perturbation over the central bank’s anti-capitalism stance. However, it’s not just Powell who seems to be out of touch with the majority of Americans. On Thursday, the newest Fed Governor, Christopher J. Waller, gave a speech on his outlook and monetary policy at Drexel University.

Housing is becoming less affordable, and that price increase has the biggest effect on low-income individuals and families who have struggled the most since last spring and who are always the most vulnerable to rising rents and home prices.

So far, so good! In fact, it’s refreshing that a central banker acknowledges how those with the lowest incomes have the toughest times amid rising prices. Unfortunately, he follows with:

Prices for lumber and other inputs for housing are skyrocketing, and while that occurrence is not having a significant effect on inflation, it is limiting the supply of new homes and helping feed the house price boom.

Despite acknowledging lumber and other inputs are “skyrocketing,” it’s unclear why he claims they don’t have significant effects on inflation. It’s more troubling he doesn’t seem to understand the Fed’s role in the increase in housing prices. Neither artificially low rates nor many trillions of dollars in mortgage-backed securities and US treasuries owned by the Fed make it into his analysis of the housing market.

He concludes, fortunately, the banking system is “strong and resilient” and that:

Nevertheless, I am watching this sector closely for signs of stress and will continue to do so.

One would think if the banking sector was in good shape, the Fed would no longer need to continue with its highly accommodative policy and various intervention strategies.

The day before the Governor’s Speech Federal Reserve Vice Chair Richard H. Clarida similarly left baffling remarks at an economic symposium in Washington, DC about what the economy faced in 2020:

more than 22 million jobs were lost, wiping out a decade of employment gains; the unemployment rate rose from a 50-year low of 3.5 percent in February to almost 15 percent in April; and inflation plummeted…

Consider the context behind the quote, paying special attention to the phrase: “and inflation plummeted…”

According to Clarida, last year, when 22 million people were out of the workforce (largely due to forced government shutdowns) the prices of goods and services decreased.

To the Vice Chair, it was bad that, in the middle of the greatest economic crisis since the Great Depression, prices went down!

According to his (and the Fed’s) logic, if prices were able to somehow increase, life would have been better for the nation as a whole. Should we use the fallacy of the Phillips Curve? If prices were able to increase more during the crisis, more jobs would have been created. There is a trade off between inflation and employment.

It doesn’t take an advanced degree in economics to understand that for the 22 million people unemployed, the last thing they need are further price increases. As for those fortunate enough to have kept their job during the crisis, a very real question can be asked:

Who, other than central bankers, actually want prices of goods and services to perpetually rise?

College tuition, internet, cable, gas, food, travel, medical, your Netflix subscription to name a few... when one just stops to think, it doesn’t make sense how we live in a world where the unaffordability of life and loss of the dollar’s purchasing power is considered a virtue by society’s best and brightest.

There are several variations of the quote:

Never believe anything until it has been officially denied.

The newest member of the Federal Reserve’s Board of Governors, Christopher J. Waller gave a speech last week about the importance of Central Bank independence, where he effectively denied the Fed’s culpability in propping up the US Government. He starts with explaining that:

Because of the large fiscal deficits and rising federal debt, a narrative has emerged that the Federal Reserve will succumb to pressures (1) to keep interest rates low to help service the debt and (2) to maintain asset purchases to help finance the federal government.

Such honesty should be commended. This emerging narrative comes as little surprise to those who’ve been following the actions of the Fed. Mr. Waller aims to dispel it as he declares:

My goal today is to definitively put that narrative to rest. It is simply wrong. Monetary policy has not and will not be conducted for these purposes.

He says the Fed acts “solely to fulfill our congressionally mandated goals of maximum employment and price stability,” and to determine appropriate monetary policy towards these mandated goals. In case it still wasn’t clear just how determined he is to dispel the idea that the Fed is nothing more than the nation’s life-support, or moves with motives beyond its dual mandate, he reiterates:

Deficit financing and debt servicing issues play no role in our policy decisions and never will… My objective today is to reinforce that message.

One way to determine validity is to compare the Fed’s actions versus its words. In the same speech, he provides various policy actions from the Fed made in concert with Congress:

The Congress has provided spending of roughly $5.8 trillion during the past year to deal with the pandemic and its effects on the economy.

Of course, a significant portion of this $5.8 trillion did not come from taxpayer dollars, but debt financing. If the Fed didn’t buy a large portion of this debt, the interest rate would be much higher. All the while, the Fed continues buying approximately $120 billion of US debt per month.

As explained, US debt to nominal gross domestic product is over 100 percent, the first time since World War II. Accordingly, per Fed policies:

The Federal Reserve's holdings of U.S. government debt has risen to around $7 trillion, with about $2.5 trillion of that total resulting from its asset purchase program aimed at smoothing credit market functioning and providing monetary accommodation.

If there is a narrative that the Fed is financing the US Government to keep rates low to service debt, or maintain asset purchases, it is hardly baseless, and one that has been reinforced through countless policy decisions and speeches.

It’s difficult to defend the apparent virtues of a Fed independent from Congress. Given last year’s various emergency lending facilities, the skyrocketing government debt (largely taken up by the Fed) and increases to the Fed’s balance sheet with spending programs run by treasury, the line between the Fed and US Government has never been more blurred. Should concern exist that a lack of independence would lead to a central bank which uses the money printer to pursue an anti-capitalist agenda, such as giving stimulus checks to people funded by government debt below market interest rates, it’s safe to say this line was crossed long ago; a line crossed when “independence” still remained intact.