Power & Market
The Mises Institute is happy to welcome Daniella Bassi to our staff!
Ms. Bassi will act as assistant editor for mises.org, our journals, and our full slate of new books for 2020.
Ms. Bassi joins us from the College of William and Mary in Virginia, where she edited publications for the Omohundro Institute of Early American History and Culture.
She also was the senior editor for the University of Vermont History Review while earning her master's degree there.
Back when I taught political science, a phrase I used when preparing students for the tests was "he who makes distinctions well, teaches well."
That is, if we're talking about regime types, dear student, you better know the difference between a totalitarian regime, and a regime that is merely authoritarian. If we're talking about eighteenth-century American ideologies, you better know the difference between Alexander Hamilton and Thomas Jefferson. If we're talking economic policy, know the difference between fiscal policy and monetary policy.
And when it comes to different groups of Americans often considered to be homogeneous, it is often helpful to dig a little deeper to see some of the differences.
One such group is indigenous Americans. Or in the common parlance: "Indians."
Often, whenever one reads a news-media article about Indians, it usually begins with a few sentences about how poor they are, and how terrible the reservations are in terms of their standards of living. Usually, the Pine Ridge reservation in South Dakota is mentioned.
But at all reservations equally poor?
After all, some reservations have forests and ample access to water. Others are in the middle of deserts with few natural resources. Some relatively near metro areas and all the services they provide. Some reservations are hours from good healthcare and good shopping.
Well, it turns out that all reservations certainly aren't all the same.
Looking at the top-25 most populous reservations, we find that the median income among people who self-identify as Indians varies from $18,890 on the Gila River reservation (AZ) to $79,167 on the Agua Caliente reservation (CA). That's for the period from 2013 to 2017.
The overall US median income during the period was about $57,000, which means the median income for Indians on the Isabella and Tulalip reservations were about equal to everyone else.
Indeed, given that many reservations are in rural areas, it's helpful to compare incomes not to the US overall, but to the incomes of Rural Americans. The rural median income for the same period is $44,020. That means income for the median household on the Agua Caliente, Isabella, Tulalip, Uintah and Ouray, Osage, Wind River, and Puyallup reservations are all higher than the median household in rural America.A the lower end, however, we do indeed find grinding poverty and remarkably low median incomes that are less than half of the national median income.
Even on the reservations with higher median incomes, poverty rates at the lower end remain elevated. The overall US poverty rate of 14.6 percent (against, from 2013-2017) was lower than all of the 25-largest reservations. The US rural poverty rate of 17.2 percent was lower than all but two (Osage and Tulalip) of the reservations.
One aspect of reservation populations that is often ignored, however, is the fact that on many reservations, people who self-identify as Indian are in the minority.
Among the 25-most populous reservations, the portion of the resident population that was Indian ranged from 1.7 percent on the Agua Caliente reservation to 96.8 percent on the San Carlos reservation.1
Reservations with lower proportions of non-Indian residents tend to be poorer. This may reflect several factors:
- Residents on reservations that are more geographically isolated tend to encounter fewer non-Indian residents, thus leading to less intermarriage, and fewer residents who are not Indians.
- Geographically isolated reservations tend to be poorer, and poorer reservations tend to attract fewer non-Indians engaged in commerce and employment on or near a reservation.
- In many cases, reservations with more laissez-faire economic policies have more "checkerboarding," or mixing of privately owned and tribally-owned lands within this reservation. Checkerboarding may correlate with higher incomes.
In general, rural reservations are often affected by many of the same problems that rural communities in general encounter. There are fewer jobs, and the jobs that do exist often pay lower wages than in metropolitan areas. The US rural median income, for instance is approximately $44,000, while the urban median income is approximately $59,900.
Geographic isolation tends to be a clear factor in cases where the tribe owns a casino. When the casino is near a metropolitan area, it attracts large numbers of visitors to the reservation who spend freely. The most extreme case of this, perhaps, is the Mdewakanton Sioux of Minnesota (a group of under 1,000 people) which owns two casinos within the Minneapolis metro area. Members of the tribe receive nearly one million dollars per year in payments from tribal business organizations.
Another extreme case is the Agua Caliente reservation which is adjacent to Palm Springs, California. The tribe and is one of the city's largest land owners. Only a tiny percentage of residents are actually enrolled in the tribe.
Less-extreme examples of relatively prosperous reservations include the Southern Ute reservation — near the college and resort town of Durango Colorado — and the Tulalip reservation, which owns a casino and business park near I-5 in Washington State, near the Seattle-Tacoma metro area.
[A note on the data: In the first and second graphs, I've used median incomes that correspond to the group labeled "AIANa," which according to the Minneapolis Fed's report on reservation incomes, "includes only individuals who self-identify racially as American Indian or Alaska Native alone." In the third graph, the Indian population corresponds to "AIANac" which "includes AIANa individuals and also those who self-identify as American Indian or Alaska Native in combination with other races." See report here: https://www.minneapolisfed.org/indiancountry/resources/reservation-profiles/]
Photo credit: I-5 Design & Manufacture via Flickr (image cropped)
- 1. The number of residents who are members of the tribe governing the reservation is lower than the number of residents who self-identify as Indian.
Neil Schulman, who passed away August 10, was best known as a science fiction writer, and his Alongside Night and The Rainbow Cadenza are libertarian classics. He was one of several brilliant writers and thinkers associated with the great Sam Konkin’s “anarcho—village." I met Neil only a few times, but his commanding presence and vigorous defense of his ideas made an indelible impression on me. He used his immense writing talents in defense of liberty and in opposition to war and the state. Only a few days before he died, he posted on Twitter, “When compared with the typical State assault on innocent civilian populations with deaths in the thousands, hundreds of thousands, or millions, the typical private assault doesn't even register.” He admired Ron Paul greatly, and I last heard his booming voice at a conference in Arizona that featured Dr. Paul. His many friends will miss him.
In Anarchy, State, and Utopia, Robert Nozick argues that If people benefit you by their activities, you have no obligation to pay them for what you have gained. Nozick provides a well-known example to illustrate this point: “Suppose some of the people in your neighborhood (there are 364 other adults) have found a public address system and decide to institute a system of public entertainment. They post a list of names, one for each day, yours among them. On his assigned day. . .a person is to run the public address system, play records over it, give news bulletins, tell amusing stories he has heard, and so on. After 138 days on which each person has done his part, your day arrives. Are you obligated to take your turn? You have benefited from it, occasionally opening your window to listen, enjoying some music or chuckling at someone’s funny story. The other people have put themselves out. But must you answer the call when it is your turn to do so? As it stands surely not.”
Why not? In brief, you may not think that the benefits are worth the costs to you, and even if they are, you may prefer to spend your time and money on something else. Further, “You may not decide to give me something, for example a book, and then grab money from me to pay for it, even if I have nothing better to spend the money on.” You must secure my consent in advance and cannot present me with a fait accompli and demand that I pay my fair share.
So much is well known, but Nozick extends the point in a way that has not gotten the attention it deserves: “Nor can a group of persons do this. If you may not charge and collect for benefits you bestow without prior agreement, you certainly may not do so for benefits which yet others provided them, So the fact that we partially are ‘social products’ in that we benefit from current patterns and forms created by the multitudinous actions of a long string of long-forgotten people, forms which include institutions, ways of doing things, and language. . .does not create in us a general floating debt which the current society can collect and use as it will.”
In this seldom-cited passage, Nozick has demolished a principal justification for the contemporary welfare state.
Different members of the ECB state that effects of monetary policy on banks’ profitability have been “broadly neutral”. Many also refer to papers defending that banks lend more under a negative rate scenario.
Here is a paper they use frequently trying to say that negative rates are good, do not hurt banks and makes them lend more: Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? (Lopez et al).
The paper ignores the collapse in net income margin and ROE and even dismisses ROTE (return on tangible equity) to try to defend the idea that banks earnings have not suffered from negative rates.
Looking at Bloomberg earnings from the Eurozone banks (SX7E Index) between 2014 and FY 2018:
- Net Income margin is down 29% on average since Quantitative Easing started
- Earnings per share is down an average of 12.3%
- Non-Performing Loans reduction has been moderate, and the figure remains elevated, at 3.3% of total banking assets, an important difference compared to other economies (the US is 1.1%) but also because eurozone bank assets are much larger relative to GDP than in other economies.
- The main beneficiaries of the sovereign and corporate bond purchase program have been deficit-spending countries that have all but abandoned any structural reform as borrowing costs fell, the automakers in Germany and semi-state owned utility conglomerates. As such, the ECB QE has increased the crowding-out effect, disproportionately benefiting the indebted and inefficient at the expense of savers.
The worrying part is that these statements ignore the fact that one of the main reasons why banks’ bottom line has not fallen more is they have almost stopped making provisions on bad loans.
There is no critical analysis of the rising risk in these central bank comments. The ECB and the above-mentioned paper assume a direct correlation between negative deposit rates and lending, without considering the risk of endless refinancing of zombie loans and the higher risk for a lower return embedded in the credit growth. Zombie companies have risen with low rates, and the ECB itself acknowledges the connection between weak banks and walking dead firms in this paper (Breaking the shackles: Zombie firms, weak banks and depressed restructuring in Europe).
It is also worrying that the ECB finds no problem seeing “high yield” companies borrow at an all-time low of 360 basis points spread or that bubbles are forming in the infrastructure and housing segments where multiples have soared in recent years despite the weak growth and modest salary and unemployment improvement.
What I find astonishing is that the ECB does not even show concern about the rise in malinvestment, whitewashing of populism by artificially lowering yields on the sovereign debt of deficit countries, misallocation of capital, and the abomination of charging for deposits to lend to almost bankrupt governments and firms at extremely low levels.
Originally published a Dlacalle.com
Yesterday's terrible fire at the Notre-Dame Cathedral reminds us how quickly centuries of accumulated "cultural capital" can be destroyed. Oak timbers dating from the 1200s in the roof and spire were lost forever; some priceless stained glass windows appear to have suffered damage. As the saying goes, France is the heart of the West, Paris is the heart of France, and Notre Dame is the heart of Paris—and as such the sight of the iconic church ablaze makes an uneasy if simplistic metaphor for the decline of the West.
"Cultural capital" here of course means something far broader than economic definitions of capital as financial wealth or factors of production. Even the broader Austrian view of capital as heterogeneous production goods, what Rothbard termed an "intricate, delicate, interweaving structure of capital goods," can't capture the sum of wealth in a society. Capital ultimately is measurable, reducible to units, while the value of Notre Dame to Catholics around the world cannot be measured. We cannot quantify the cost of its damage or destruction in purely economic terms. But we can recognize a loss. Hundreds of years of wealth bound up in the beauty of Notre Dame's roof and spire are now lost to us forever.
The blogger Bionic Mosquito reminds us that civilizational wealth compounds over time, and thus wealth can be material, cultural, spiritual, even civilizational:
...Think of wealth not just on a balance sheet, but wealth in terms of culture, accumulated wisdom and knowledge, the captured savings of time.
Accumulation and time are key. Healthy societies build and preserve wealth, which is to say they are made up of individuals who strive to create more than they consume. The people who built Notre Dame over two centuries, using rudimentary pulleys and scaffolding, certainly did not expect to see the end results of their work. In fact no single Pope, architect, financier, mason, artist, laborer, or French monarch saw the project through from start to completion. But they built something lasting, something of incalculable benefit to future generations. They created wealth lasting far beyond their lifetimes.
All healthy societies do this. The notion of being concerned with things beyond one’s lifetime is innately human. Humans are hardwired to build societies, and the most ambitious humans have always sought to build lasting monuments and modes of living. That’s not possible unless people work toward a future they will not enjoy themselves.
This was especially true for our ancient primitive ancestors, who lived very short and difficult lives. We can imagine how much they wanted to have lasting forms of sustenance: food, water, clothing, shelter — instead of having to produce that sustenance day after day.
In fact, this trait perhaps more than any other is the hallmark of civilization. We can call it many things, but we might just say healthy societies create capital. They consume less than they produce. This capital accumulation creates an upward spiral that increases investment and productivity, making the future richer and brighter. Capital accumulation made it possible for human populations to develop beyond subsistence misery. It made the agricultural, industrial, and digital revolutions possible.
Technical know-how, artistry, and craftsmanship also represent forms of wealth which can be lost over time, and apparently have been. This article questions whether Notre Dame really can be rebuilt in quite the same way:
While architects have enough detailed information about the cathedral to pull off a technically very precise reconstruction, the craftsmanship is unlikely to be the same. Today, the stone that makes up the cathedral would be cut using machinery, not by hand by small armies of stonemasons as in the 12th century. "Nineteenth-century and 20th-century Gothic buildings always look a little dead, because the stone doesn't bear the same marks of the mason's hand," Murray told Ars Technica.
Civilization is far more than just economics, but it needs economics. Mises cautions us that it "will and must perish if the nations continue to pursue the course which they entered upon under the spell of doctrines rejecting economic thinking." So when we consider the sad spectacle of Notre Dame burning, we should ask ourselves whether the politics and economics of our age encourage or discourage building wealth for future generations. Even if one reduces the inheritance of western countries today to material well-being, the threat of losing what makes us rich certainly concerns us all. Short-term political thinking, coupled with demand-driven mania in fiscal and monetary policy, can consume our future just as fire consumed the roof of Notre Dame.
New York Gov. Andrew Cuomo just approved a $175.5 billion budget, boasting it as the “broadest, most sweeping state plan that we have done.”
Hoping to spend $19.6 billion on Medicaid and healthcare alone, a 3.6 percent raise from last year, New York’s lawmakers also passed a new “mansion tax,” targeting properties worth more than $2 million. In addition, the state added a new online sales tax to the books, which officials hope will raise enough revenue to allocate $320 million to help with New York City’s transit system, a new vape pen tax, and a ban on plastic shopping bags, which gives counties the freedom to charge 5-cent fees on paper bags.
But are all these efforts enough?
New York, out of all states, should have learned its lesson once affluent residents packed up and left. After all, it was Cuomo himself who announced the state’s income tax revenue had plummeted by $2.3 billion since his budget plan was announced. But despite the backlash, Cuomo doubled down, dismissing the loss in tax-based cash as a product of the 2017 federal tax reform and its $10,000 limit on state-and-local tax (SALT) deductions.
Prior to President Trump, there were no limits on SALT deductions. Naturally, Cuomo believes New Yorkers suffered greatly with the cap imposition. But the problem goes way beyond the change imposed by Trump, as SALT’s goal is to help relieve residents of high-tax states. If local taxpayers didn’t have to deal with such a high tax burden in the first place, there would be no reason to leave.
As The Wall Street Journal editorial board put it, averting more damage is the best anyone can hope for — in the time being. In the long run, however, unwinding the state’s bureaucracy is the only solution to the Empire State’s problems.
Taxation: Beneficial Only to the Politician
As Frank Chodorov wrote in the classic Income Tax: The Root of All Evil , the U.S. government hit the jackpot when it succeeded in making an “obnoxious” law, such as the temporary taxation of income, a feature of the American way of life, effectively turning the country’s founding principles into a “collectivistic doctrine.”
After that, everything became fair game.
As explained by Chodorov, when 42 states ratified the tariff bill featuring an income-tax amendment in 1913, the 16th Amendment became part of the U.S. Constitution, “[reducing] the American citizen to a status of subject, so much so that he is not aware of it; [enhancing] Executive power to the point of reducing Congress to innocuity; and [enabling] the central government to bribe the states, once independent units, into subservience.”
As Cuomo exemplifies with his never-ending campaign to destroy the New York state economy, income tax (or any tax for that matter) only benefits politicians. As the idea of taxing those who have property appeals to those who do not have any or at least as much as others.
It is “political ambition and the sin of covetousness,” as Chodorov put it, that help to perpetuate the idea that government has a right to confiscate property in the name of the common good. And politicians bank on it, using it to boost political clout.
Let's talk about Econ 101, scientism and modern economics.
At Bloomberg, Noah Smith argues that Greg Mankiw's Principles of Economics textbook is out of date because academic economists are more concerned with empirics and wealth inequality.
Furthermore, Smith pushes the view that economic theory itself is outdated. Not only because academic economists no longer study it or care about it, but supposedly because empirics have proven the laws of economics to be out of touch with reality.
He purports that Mankiw proposes theoretical insights that are skewed against redistribution because of his "libertarian political slant." This just seems to be another way of saying that it avoided most Keynesian mathematics and empiricism and focused on the foundational theory.
Many libertarians derive their views on economics from the Austrians. It's worth noting that Mankiw admittedly never read any Austrian economists in undergrad or grad school and only first read Hayek and added a note on Hayek to the 4th edition of his text in the mid-to-late 2000's. If you're conflating politics with economics, Mankiw is far from an Austrian or Austro-libertarian.
Smith neither addresses Mises' a priori defense of economic theory, or praxeology, nor Hayek's criticism of the scientism of the social sciences.
Smith also doesn't address the obvious: economic incentives explain the rise in empiricism in academia. And the politicization of the economy and growth in government explains why the economics professions have shifted politically left and focused their efforts on income distribution.
Smith states that new empirical methods prove that the assumption that economic actors are perfectly rational is false and uses this insight to disparage economists and libertarians relying on insights derived from the foundations of economics.
Disparaging Mankiw's lessons as skewed by libertarian thought ignores the fundamentals of Austro-libertarian economics. Mises did not rely on a view of perfect rationality to arrive at economic conclusions or to confirm the laws of economics. As Mises stated in Theory and History:
The sciences of human action starts from the fact that man purposefully aims at ends he has chosen. It is precisely this that all brands of positivism, behaviorism, and panphysicalism want either to deny altogether or to pass over in silence.
I will conclude with Mises' address to this very debate:
Economic statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification and falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events.
While Mankiw is no Austrian, we should not let Smith dictate the discussion or get away with wrongly conflating various economic and political views given that he's completely ignoring long-standing economic explanations that address his criticism of foundational economic insights.
Recently, 2020 Democratic presidential contender Andrew Yang appeared on Fox News . During the segment, Yang asserted that the increase in the amount of technology in the private sector, e.g., artificial intelligence, has lead to an increase in unemployment. Like the other candidates in the Democratic primary, Yang embodies the same principles of economic interventionism, though attempting to differentiate his views from those of his counterparts on the left. Unlike the other, however, he has allocated considerable attention to entertaining the notion that if artificial intelligence is not hindered in its progression, it will soon displace millions of Americans from jobs.
Yang has given the impression that he is the “reasonable” and most pragmatic candidate among all presidential contenders, garnering praise from both the left and the right. The entrepreneur is seen as a man of bold new ideas, particularly in regards to his economic protocols. But in essence, Yang’s arguments hearken back to the Technocrat movement of the 1930’s. These ideas seem to be correct superficially, but underscore a severe misunderstanding of the basic economic principles that guide human action.
Henry Hazlitt’s famous book Economics in One Lesson addresses the point raised by Yang, that machines are displacing humans, particularly the chapter titled “The Curse of Machinery”. Hazlitt reduces the problem to simple economic principles. He first asserts that if machines create unemployment, it follows that every technological innovation to this day has done so by improving the manufacturing process, gradually displacing jobs. This logic would lead to the conclusion that to achieve maximum employment, all the technological progression of the past millennia would have to be reversed.
While it may be true that in the short run a machine may displace jobs upon being introduced to a sector, the creation of the machine itself would bring in new jobs. The economizing entrepreneur would only adopt the machine if he sees it as an integral component in expanding his profits. These new profits could be used for expanding his operations, or his own personal consumption. If the former, the entrepreneur could invest in new machinery, in turn creating new jobs, and if the latter, money spent in any given industry would lead to an increase in employment in that industry.
Another point to consider is that goods produced in one industry could be used as capital in another industry. For example, a firm may use machines to create bolts at a faster rate. While this may lead to an initial decrease in the number of jobs in the bolt industry, it would lead to an increase in jobs in another industry. For example, car manufacturers may need to use these bolts, and so they now have more capital to use in manufacturing cars. This would lead to an increase in the amount of jobs in the automotive industry.
The view that jobs would be displaced by a rise in technological innovation is really rooted in the view that the economy is a fixed pie. Only so much wealth exists and only so many people can have it. This is a fallacy. It is the dynamic nature of the economy that leads to the constant expansion of industries, which in turn leads to the expansion of other industries who rely on goods produced by these industries. And as this process guides economic progress, new industries come about. This process of economic progression will never end, so long as we continue demanding goods, which will only lead to an increase in the quality of living.