Power & Market
The action axiom can be stated as follows (Cf. Rothbard [1962, 1970] 2004, pp. 1–2, 7–8, 19–20; Rothbard, 2011, pp. 113, 290; Mises,  1998, pp. 14–16): “Human beings engage in purposive behavior—i.e., they choose which scarce means are to be more fruitfully (or economically, or rationally) employed in order to satisfy their most preferred ends. This behavior—stemming from human free will—is what we call action. As long as means are scarce and wants are not fully satisfied, human beings will keep on intentionally (or purposefully) acting.”
Why is this an axiom? Because you cannot disprove it without either conceding its truth or incurring a self-contradiction (Cf. Rothbard 2011, pp. 6, 10; Rothbard  2002, p. 32 and 32n6). In fact, anyone trying to disprove the action axiom would indeed engage in purposive behavior—i.e., he would be employing scarce means (his time, his intellectual labor, etc.) in order to achieve a preferred end (trying to disprove the action axiom instead of, say, watching TV or reading Rothbard). Therefore, the action axiom denier would either contradict himself—claiming the untruth of a statement he is instead performatively proving to be true—or be forced to concede the truth of the axiom itself—because otherwise he could not maintain to be acting in the sense we defined above.
The Action Axiom and “Microeconomics”
Generally, microeconomics textbooks frame the main tenets of consumer (and, analogously, producer) theory as follows: “Consumers are supposed to be rational—i.e., they employ scarce means to attain desired ends. Moreover, consumers’ preferences are assumed to feature (at least) the following properties: completeness, transitivity, and non-satiation.”
As I will briefly explain, it is very easy to derive these properties from the action axiom itself. There are many other properties of human behavior that we could derive from this axiom—such as, e.g., time preferences, the law of diminishing marginal utility, and the law of optimum returns—but those will not be examined here.
First, consider “completeness”—i.e., human beings’ capability of always ranking alternative ends. Since action requires having preferred ends, it also entails that human beings will act if and only if they indeed have ends they want to achieve—i.e., they are willing to act in order to substitute a state of the world with a more desired one. In other words, were human beings not always capable of deciding between at least two possible ends and ranking them (e.g., B is preferred to A, or vice versa), they simply could not act (Cf. Rothbard 2011, pp. 305–07). But, as we saw above, action is an axiomatic truth of human nature—we cannot conceive of nonacting human beings. Therefore, action itself implies complete preferences—i.e., human beings need to be always capable of ranking the various potential states of the world (A, B, C, etc.) they can attain while engaging in action.
Second, consider “transitivity”—i.e., if I prefer A over B and B over C, then I must also prefer A over C. Again, it is straightforward that absent transitivity human beings would not be capable of conclusively ranking preferences—hence, they would not have precisely definable desired ends to struggle for. Consider, for instance, the simplest possible case: Fabrizio is faced with the possibility of employing some means (say, one hour of his labor) in order to attain one among three alternative ends—A, B, and C. However, suppose also that he prefers A to B, B to C, and then C to A; the question now arises: How could he act? In fact, it is obvious that he would face a paradox—not being able to decide which end is to be pursued and which ones are to be foregone. Again, this proves that transitivity is directly—and easily—derived from the action axiom: men with nontransitive preferences would not be able to act—but this would contradict their nature as human beings!
Third, consider nonsatiation. Here, suffice it to say that “a man perfectly content with the state of his affairs [i.e., satiated] would have…neither wishes nor desires; he would be perfectly happy. He would not act; he would simply live free from care” (Mises  1998, p. 13). Again, denying nonsatiation of preferences would be tantamount to denying the acting nature of human beings. Thus, we proved again (via reductio ad absurdum) that nonsatiation is consistently derived from a true axiom—and must thus be itself true.
There are two other properties that conventional microeconomics textbooks ascribe to economic agents’ preferences—namely, continuity and convexity (i.e., consumers are assumed to love goods’ variety). Suffice it to say that while convexity can be postulated (but need not be, since it is not directly derived from the action axiom), the assumption of continuity is simply wrong—because human action does always involve choices among discrete, noncontinuous units (pounds of bread, gallons of milk, haircuts per year, etc.) (Cf. Rothbard [1962, 1970] 2004, pp. 130n27, 305–07).
The Action Axiom and Ethics
If the fundamental feature of human nature is that human beings act, then what does this (a priori) truth imply for other branches of human sciences? Take, for instance, the task of building a rational (i.e., a priori true) ethics of human liberty.
Starting from the action axiom, we can, for instance, build a rational and cogent argument for human beings’ natural and absolute self-ownership—i.e., any human being shall be the sole owner of his body, his labor, and his mind (namely, his choices, his values, his free will, etc.). In fact, let’s assume the simplest possible case: there are two persons—A and B. Now, there are three possible arrangements (Cf. Rothbard 2011, pp. 353–54).
First, we can assume that A is the owner of B (or vice versa). However, if A is the owner of B, then B is A’s slave—and slaves, by definition, are not free to act as they will. But if B is no longer capable of free-willed action, then he would no longer be a human being as we defined this concept (i.e., acting man) above. But this would imply a paradox—B being a human being in our hypothesis but no longer being one in our conclusion. Hence, this first arrangement is to be discarded as self-contradictory.
Second, we can assume that A owns a share of himself and a share of B (and vice versa). However, this would entail that A cannot act without B’s approval (and vice versa). But, for B to approve A’s action, B is required to purposefully cast a vote approving such an action (and vice versa). But then we reach again a paradox: A cannot act without B’s consent, but B’s consent is itself an action requiring A’s approval, but A’s approval is itself an action requiring B’s consent, et cetera—an infinite regress. But if both A and B’s action is stalled, then neither A nor B can act—and, if they cannot act, they are at odds with their nature as human beings (i.e., acting men). Hence, again, this second arrangement is to be discarded as paradoxical.
Lastly, we are left with the third option, the only consistent—i.e., noncontradictory—solution to our problem of human beings’ ownership: both A and B are to be self-owners. No other arrangement is compatible with human nature—i.e., action as deliberate choices employing scarce means in order to achieve preferred ends.
Economics has conspicuously departed from its Mengerian-Misesian-Rothbardian framework as a purely deductive science. By doing so, mainstream economists have forgotten the epistemological groundwork of economics, abandoning proper praxeological analysis, neglecting the apodictical (a priori) truths of praxeology, and imitating empirical (a posteriori) sciences. In the end, this departure from the Mengerian-Misesian-Rothbardian framework has proved detrimental for (at least) two reasons.
First, it prompted mainstream economists to justify their assumptions as “operational” (or “heuristic”) hypotheses—like empirical scientists do—instead of acknowledging the a priori truth of praxeological tenets. Second, it undermined sound and rational analysis even in other branches of human sciences—such as ethics—thus leaving intellectual room for moral relativism, postmodernism, and collectivistic ideologies.
The Fed’s balance sheet could easily be replaced with the phrase abracadabra; truly, there is little else in the world which works as magically as it does. Often cited, seldom understood, few seem to realize that as the balance sheet expands, so too does the power of this central bank at the expense of the entire nation.
As of mid-December 2020 the Fed’s balance sheet stood at $7.2 trillion. These trillions of dollars are considered to be an “asset” owned by the Federal Reserve; hence the accounting term “balance sheet” is both normally and appropriately used. Assets are a fundamental part of any balance sheet, as defined by the Financial Accounting Standards Board (FASB):
Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
The Fed must first purchase something tangible such as US Treasurys or mortgage-backed securities (MBS) in order for them to become assets. The other part of the definition requires an asset to provide “future economic benefit” to the Fed.
Despite the news of this year’s various covid spending programs, the brunt of the balance sheet continues to be composed of the $4.6 trillion of Treasurys and the $2.0 trillion of MBS held; in other words, debt.
The future benefit to the Fed is that these principal amounts remain owed to it and will continue to generate interest income so long as the principal is outstanding. When we talk of the Fed’s balance sheet, we are talking about one of the largest accounts receivable balances in the world!
To further conceptualize this, the Fed created around $7 trillion and gave it to someone, or some entities, to “do something” with. The trillions, for all intents and purposes, have digitally left the Fed and have been received elsewhere. The idea here is that at some later date, the Fed will get back its $7 trillion, but until that time the Fed will continue to benefit from receiving interest payments from the borrower(s).
Conversely, there are those who owe the Fed that $7 trillion, plus interest. The principal owed plus interest (when rates are positive) means the debtor will always owe more money than initially borrowed; which is how, after all these years, the US debt outpaces the money supply.
A handful of people, which the general public is not part of, received a massive amount of money at rates close to or maybe even at zero. While good for these few, there is a slight problem with borrowing trillions from a central bank specifically: What do you do with a trillion dollars and a great rate?
If the intent is to make a return on money, it can be lent at a higher cost than what it was borrowed for, or assets can be purchased to make a profit before paying it back. Thinking along these lines, we can see why trillions of dollars have not gone into Main Street households for goods such as toothpaste and toilet paper but rather into stocks, bonds, and real estate.
Especially for nations whose central banks own equites, like Switzerland, it’s easy for some to defend this process, looking favorably upon central banks making money. However, profit made by a central bank comes at the expense of society as a whole—through currency debasement, distortions throughout the market, and the boom-and-bust cycle, to name a few. We can be sure the “gains” of a central bank come at a very real, yet still grossly misunderstood, cost to society.
The asset acquisition process of a central bank has various names, sometimes called stimulus, liquidity injections, QE, etc. These terms sound very official, yet can be reduced to a simple idea, the act of money creation for the purpose of purchasing or lending. Contrary to the narrative, there is nothing new or inventive about this intervention. This idea of “expanding the balance sheet” can be summed up as nothing more than theft. Those who understand economic history will know it by a different name: inflation.
Listen to the Audio Mises Wire version of this article.
New tax revenue data released by the Treasury Department on Monday shows that tax revenue further worsened in June (compared year over year) from May's already cratering total.
On the plus side, neither May nor June has returned to April's historic plunge in revenue.
As shown in June's Monthly Treasury Statement, June's total tax receipts were $240.8 billion. That was down 27.8 percent year over year, a decline from May's year-over-year drop of 25 percent. This was nonetheless less of a plunge than April's multidecade low in revenue growth, which hit –54.8 percent.
Source: US Treasury.
In spite of declining revenue, federal spending continues at a record-breaking pace. Federal outlays surged in June to $1.1 trillion, a remarkable sum for a single month of spending. In recent years, federal spending for an entire year has been between $4 trillion and $4.5 trillion.
With declining tax revenues and soaring spending, the deficit reached new highs in June as well. June's budget deficit hit $864 billion, a new high. It is now likely that the annual budget deficit will easily top $3 trillion, which will be well above any previous deficits.
The annual deficit reached "only" $1.4 trillion in the wake of the 2008 financial crisis. This moderated over the next eight years, but after years of runaway spending during the Trump administration, the annual deficit again reached $1 trillion in 2019. This was a remarkable feat for a nonrecessionary period, and I warned at the time that this did not bode well for any coming period of economic turbulence. That period has now arrived, and not surprisingly, there appears to be no end in sight to the mounting deficits.
Unemployment Numbers Climb Again
Hopes that the economy might soon roar back and bring some relief from skyrocketing deficits remain unfounded for now.
Today's new data on initial unemployment claims brought more bad news, as more than 1 million workers filed for unemployment benefits for the seventeenth week in a row. For the week ending July 11, initial unemployment claims totaled 1.3 million, a slight decrease from the 1.31 million workers who filed for new benefits the week prior. That's in seasonally adjusted numbers. In unadjusted numbers, new claims actually increased from the previous week, rising from 1.4 million the week of July 4 to 1.5 million last week.
Since March, 51 million American workers have filed for unemployment. As of the week of July 4, 17.3 million continue to file for claims.
Moreover, June's tax revenue suggests that worker income has plunged with employment.
Will earnings and jobs and tax revenue come roaring back in July? This is certainly not a given. After all, many states and jurisdictions are now reimplementing business closures, shutdowns, and other measures which will surely eat away at both jobs and tax revenue. As with the first round of business closures, retail sales and food services are likely to be most immediately impacted.
But underneath those industries are a wide variety of support industries, from janitorial to bookkeeping to commercial real estate, all of which will affect both blue-collar and white-collar hiring.
Tax Hikes on the Horizon?
As earnings and retail sales plunge, the greatest danger to economic recovery lies in the decline of state and local taxes. The threat does not lie with the tax declines themselves, but with the expected policy reaction. As school districts, city governments, and state legislatures face immense shortfalls in revenue, many are now increasingly talking about large tax increases to fill the budget hole. This will be crippling for businesses seeking to come back from the current round of business closures and the collapse in consumer demand for many services and products. Tax increases will cripple the ability of entrepreneurs to shift resources to more in-demand industries and start up new businesses where old ones fail.
Facing uncertainty about both tax increases and the threat of ongoing mandated business closures, many business will wait as long as possible to commit to new staff hires.
There are way more people on Main Street than members of Congress or the Fed, yet for inexplicable reasons these few have control, power, and decision-making ability over the lives of the many. Congress can legally tax and spend. The Fed can legally create US dollars and buy real assets at virtually no cost. These powers allow this very small group of individuals to affect the lives of hundreds of millions of Americans, if not the entire planet, by engaging in activity that if done by anyone else would be called counterfeiting.
For example, the Wall Street Journal noted that Secretary Mnuchin is hopeful that between July 20 and the end of the month a new economic stimulus package will be unveiled:
Mr. Mnuchin said the administration supports a second round of so-called economic impact payments to households, an extension of enhanced unemployment benefits for furloughed workers, and a “much, much more targeted” version of the Paycheck Protection Program of forgivable loans for small businesses.
Mnuchin, a man who may still be unrecognizable to most who don’t follow the political theater, is estimated to have a net worth of around $400 million. His role as head of the Treasury and Trump’s top economic advisor seems to require that he “plan” for those on Main Street.
As for the next iteration of the Paycheck Protection Program, how much more “targeted” will it be? Well, that is up to those deciding our future without our consent. But like all of government’s best-laid plans, the program will only get larger in scope. Mnuchin mentioned just last month:
Before we rush back and spend more money, whether that’s a trillion dollars or whether that’s more, we want to make sure we’re careful in knowing how much more we need to spend.
It's incredible that we live in a world where an unelected official has the power to decide where trillions of dollars are spent, with credit supplied by well-revered central banks and using economic calculations known only to the privileged few. While it’s easy to point to US central planners and their lack of proficiency in economics, this predicament is not restricted to the United States.
According to Forbes, the European Central Bank (ECB) is headed by the second most powerful woman in the world. Similar to Mnuchin, Christine Lagarde was not elected by the people, but she is charged with monetary policy over the entire continent. CNBC recently shared an interview in which Lagarde proclaimed:
“I want to explore every avenue available in order to combat climate change….This is something that I hold very strongly.”
Lagarde added that the bank “has to look at all the business lines and the operations in which we are engaged in order to tackle climate change, because at the end of the day, money talks.”
This same ECB is currently embarking on a €1.35 trillion asset program on top of its €20 billion per month bond-buying program!
If it's any consolation, Mnuchin is not using his central bank to tackle climate change. Distressingly, if he wanted to, and the Treasury or Fed made a mandate, nothing could stop them.
When the rich and powerful seek to plan for those in a much lower socioeconomic standing than their own, as far as monetary policy is concerned, whether their intentions are to genuinely help those in need or purely to control the masses is actually irrelevant. We know the outcome. It starts with a crisis, involves government intervention, and ends with the Fed owning real assets. To no one’s surprise, the people meant to benefit most from intervention find that they benefit the least.
For those who recall, the Great Recession was the harbinger of Fed ownership of our mortgages. Now they own our bonds. In Europe central bankers are charged with fighting climate change. We’ve predicted this several times already and it bears repeating: one day, with this progression, they will officially own our very stock exchange. Some call it policy; we’ll call it what it is…theft!
The Österreichische Mediathek, an Austrian archive for sound recordings and videos on cultural and contemporary history, has published a very short clip titled "Vienna Economics" featuring the voice of Eugen von Böhm-Bawerk. The 26-second clip, dated 1905, is in German, but it allows listeners the rare treat of listening to one of the greatest economists of the twentieth century.
A translation of the page offers this description of the clip:
Unfortunately, the great economist, Professor Eugen von Böhm-Bawerk (1851 to 1914), does not speak about his subject in this sound recording, which was recorded in the Vienna Phonogram Archive on December 20, 1905, but rather mentally talks about the then quite new recording machine, the phonograph. - Böhm-Bawerk, who was also twice Minister of Finance (in the Gautsch and Koerber cabinets), along with Carl Menger, Eugen von Philippovich and Friedrich von Wieser, is one of the main representatives of the Viennese School of Economics, which extends well beyond Austria and beyond.
Transcript: I don't know what future ages would like to learn from us. I would know what I would like to learn from future ages. Unfortunately, the phonogram post, to which I could entrust my curious questions, does not provide a response.
As Guido Hülsmann notes in the magnificent Mises: The Last Knight of Liberalism, 1905 was the year Böhm-Bawerk was the year he obtained a full chair as a professor at the University of Vienna, a victory of profound importance for the history of the Austrian school.
[Carl] Menger was successful not only in developing the continental tradition of economic science, but also in establishing a network of like-minded young thinkers within the confines of Austria-Hungary. He only failed to get Böhm-Bawerk a chair at the University of Vienna. His favorite disciple applied twice,in 1887 and 1889, but each time the Ministry of Education chose a different candidate. They argued that Böhm-Bawerk represented the same abstract and purely theoretical school as the other chairholder (Menger) and that it was necessary to also have a representative of the new historical school fromGermany. Even this did not prove to be a decisive obstacle. In the fall of 1889, Böhm-Bawerk went to Vienna to join the Ministry of Finance and became an adjunct professor at the University of Vienna; in 1905 he obtained a full chair. Hence, in distinct contrast to all other modern (marginalist) schools of economic thought, the Austrian School quickly reached a position of power, protected by intellectual tradition and political patronage. Under the leadership of the next generation, it would obtain a position of unparalleled influence.
Böhm-Bawerk would end up being publishing important works advancing the Austrian theory of capital and interest, as well one of the most potent takedowns of Karl Marx ever written. His students at the University of Vienna included Ludwig von Mises and Joseph Schumpeter.
In a 2002 Quarterly Journal of Austrian Economics article, George Reisman, a student of Mises himself, noted that it's "entirely conceivable to me that Mises might have described Böhm Bawerk as the most important Austrian economist."
For readers who are excited to find this neat historical gem, consider checking out the Ludwig von Mises (Audio) Archives available here on the site.
President Trump’s decision earlier this month to assassinate Iran’s top military general on Iraqi soil — over the objection of the Iraqi government — has damaged the US relationship with its "ally" Iraq and set the region on the brink of war. Iran’s measured response — a few missiles fired on an Iraqi base after advance warning was given — is the only reason the US is not mired in another Middle East war.
Trump said his decision to assassinate General Qassim Soleimani was intended to prevent a war, not start a war. But no one in his right mind would think that killing another country’s top military leader would not leave that country annoyed, to say the least. Senators Mike Lee (R-UT) and Rand Paul (R-KY) said that the Trump Administration’s briefing to Congress on its evidence to back claims that Soleimani was about to launch attacks against the US was among the worst briefings they’d ever attended.
After initially claiming that Soleimani had to be taken out immediately because of "imminent" attacks he was launching against the US, Trump Administration officials including Secretary of State Pompeo and Defense Secretary Esper have been busy walking back those claims. Esper claimed over the weekend that he had not seen the intelligence suggesting an attack on US embassies was in the works. If the Secretary of Defense did not see the intelligence, then who did?
No doubt the Iraqi leadership recognized these kinds of deceptions: the same kinds of lies were used to push the US into attacking their own country in 2003. So it should not have come as a big surprise that the Iraqi government met last week and voted for all foreign military personnel to leave Iraqi soil.
Then a funny thing happened when the Iraqi prime minister attempted to communicate to the US government the will of the Iraqi people through their democratically elected officials. On Thursday Iraqi Prime Minister Mahdi phoned Pompeo to urgently request that Washington enact a US troop "withdrawal mechanism" in Iraq. American troops are in Iraq by invitation of the Iraqi government and the Iraqi government had just voted to revoke that invitation.
The State Department responded with a statement titled "The US Continued Partnership with Iraq," in which it essentially said that the US would not abide by the request of its Iraqi partners because the US military is a "force for good" in the Middle East and that as such it is "our right" to maintain "appropriate force posture” in the region.
The US invaded Iraq based on Bush administration lies, and a million Iraqis died as a result. Later, President Obama ramped up the drone program and also backed al-Qaeda-affiliated terrorists to overthrow the secular Syrian government. Obama also attacked Libya based on lies, leaving the country totally destroyed. Trump is assassinating foreign officials and threatening destruction of Iran.
And the State Department calls that a "force for good"?
The United States can be a true force for good, however. End the military occupation of the Middle East, end foreign military aid, stop using the CIA to overthrow governments. Allow Americans to travel and do business in any country they wish. Lead by example and demonstrate how free markets and peace benefit all. A "force for good" means not forcing others to bow to your will.
Americans have witnessed people picketing in support of a $15 minimum wage. It’s called “The Fight for $15.” Florida citizens will even vote on embedding a $15 minimum wage in their state constitution in the November 2020 election. A minimum wage plebiscite is pending in Idaho in 2020. If the past is any indication, the prospects for the Florida Idaho initiatives are good. Of the 27 state minimum wage votes since 1988, 25 passed. The two that were rejected, Missouri and Montana, were in 1996. For the 25 that have passed, electoral margins have almost always substantial. For information about these ballot initiatives, see ballotpedia.org.
Interestingly, Floridians first put a minimum wage in their constitution in 2004 when it was set at $6.25 and indexed to inflation each year. That’s the reason Florida’s current minimum wage is $8.46, an otherwise curious number. Florida’s 2020 amendment proposes increasing Florida’s current minimum wage to $10.00 in September, 2021, and thereafter in $1.00 increments to $15.00 in September 2026.
Idaho’s plebiscite, if enacted, will raise the current $7.25 minimum wage to $12 by 2024. Moreover, and particularly important for what follows, it will eliminate a current provision that allows people under age 20 to be paid $4.25 an hour for their first 90 days on the job.
Media accounts of the “Fight for $15” are supportive. They typically offer numerical exercises showing “inadequate” earnings of people working full time at the minimum wage. The accounts are laced with terminology such as “fair” and “living” wages, a tactic surely designed to evoke public sympathy/support for those struggling economically. It also seizes the high moral ground for supporters since it puts their opponents in the untenable position of appearing to favor “unfair” and “non-living” wages. It always helps to control the terminology used in a debate, doesn’t it?
Sympathy and terminology without knowledge can be dangerous, or as the saying goes, “the road to hell can be paved with good intentions.” Or as University of Chicago Nobel Laureate in economics George Stigler once put it: “Whether one is a . . . churchman or a heathen, it is useful to know the causes and consequences of economic phenomena.”
The Source of the Problem
Whether intended or not, increases in the minimum wage doom those whose economic value to employers is between the current minimum wage and the proposed higher minimum wage. The lower rungs of peoples’ economic ladders are cut off. They lose their jobs regardless of the intentions of their supposed supporters. Their supposed supporters are actually their enemies. They need to “help” less.
It is unfortunate when we read that the person who filed Florida’s ballot initiative said: "In life, I think that you’re supposed to do the most, for the most with the least. ... I did [the ballot initiative] in a way that would be business-friendly, and not just throw them in the deep end.” Similarly, an official in the “Idahoans for a Fair Wage” says "I think this would stimulate the economy, and our goal really is to help lift working Idahoans out of poverty. We’ve found that a lot of the people that this would really help would be people pretty much 35 and under."
In truth, the bills only makes many low-wage workers now legally unemployable. This is an odd way to “stimulate the economy.” And as noted at the outset, eliminating a sub-minimum wage for workers under 20 is a way to hurt, not help, those who are less productive workers. Just because a worker has relatively low productivity is no reason to outlaw that person's job. But that is what minimum wage increases do.
- "How Minimum Wage Laws Increase Poverty" by George Reisman
- "Outlawing Jobs: The Minimum Wage" by Murray Rothbard
- "Bernie Sanders Shows Us How a Minimum Wage Hike Hurts Workers" by Ryan McMaken
Last month, the United Nations released its Human Development Index , which is a report that attempts to quantify the quality of life in world's nations in a way that looks beyond purely economic measures. According to the report:
The underlying principle of the HDI, considered pathbreaking in 1990, was elegantly simple: National development should be measured not only by income per capita, as had long been the practice, but also by health and education achievements.
Ranking countries by their HDI value trans- formed the development discourse and dethroned income per capita as the sole indicator of development progress.
The Economist sums up the method in more detail:
The index combines four simple measures: life-expectancy at birth; gross national income per person; average years of education; and expected years of school. First, each variable is normalised on a scale of zero to one; next, the two education variables are averaged; and finally, the index is calculated as the geometric mean of its three components.
In other words, the index is an attempt to answer the often-hard criticism that there's more to life than measures if income.
Of course, there's also more to life than aggregated numbers on life expectancy, education, and income, as well.
And, as Daniel Mitchell has often noted, these sorts of ranking schemes created by organizations like the UN and the OECD tend to be created in a way that looks good to the international bureaucrats who create them. And needless to say, these people aren't exactly known for a dogmatic preference for laissez-faire.
Nevertheless, if viewed with the proper skepticism, HDI is an interesting look into what UN researchers think is important, and how different countries stack up in this particular case.
When we list the top 30 countries ranked in terms of HDI, we find Norway at the top, Estonia at the bottom, and the United States close to the middle:
The only Western European countries that don't make the top 30 are Portugal and Andorra which are ranked at 41 and 35, respectively. Greece, which is an EU country, and traditionally considered to be part of "the West" is ranked at 31.
If we were to extend the list to the top fifty, we would also see Poland, Latvia, Chile, Hungary, Argentina, Croatia, and Russia, among others.
Where Does the United States Rank?
From what I can find, not a single major news outlet other than The Economist has commented on the new report. This may be in part due to the fact that the rankings don't lend themselves to any snappy observations about how the report "proves" that the United States is gravely deficient in some sort of quality-of-life indicator, and that all the US's problems will be solved if only it embraces more government intervention.
It is no doubt disappointing then, that the United States is not especially remarkable in the HDI. It ranks 13th between Canada and the United Kingdom. The US is two notches below Denmark and two notches above Finland.
France, Spain, and Italy, however, rank remarkably low, coming in at 24th, 26th, and 28th respectively.
It's conceivable, of course, that believers in the myth of the Scandinavian socialist utopia might point to this as further "evidence" that more interventionist states are "better off" than the supposed hyper-capitalist United States.
Moreover, if having a highly interventionist state is the prescription for success, why do countries like Italy, Spain, and France rank so far below the United States? Those countries all have enormous welfare states and profligate government spending. Indeed, if the Scandinavia is our model, why does the US rank above Finland, and barely below Denmark? After all, the US's HDI value is 99%the size of Denmark's. There's really not much of a difference here between the US and the supposed promised lands of northern Europe.
"Adjusting" for Inequality
If you have a habit of reading reports like this, though, you can probably guess where this is headed.
The UN's own report points toward a very high level of quality of life in the US both in terms of education, life expectancy, and income.
However, as has become popular now among agencies like the UN, the report must be "adjusted" for inequality.
(If you're interested in how they do this, see here .)
The US is quite large and diverse (in terms of geography demographics, and more) compared to every other country with a "very high HDI." Not surprisingly, then, we find more diversity in the US than elsewhere.
The UN researchers then "adjust" for this by discounting the US's HDI score in accordance with its inequality level.
Thus, the US HDI value falls from .92 down to .79. Now, rather than being near the top, this puts the USA much farther down the list near France (.80), Hong Kong (.80), Israel (.78), and South Korea (.77).
Now, instead of being ranked 13th, the US is ranked 24th.
Of course at this point, we're reaching labyrinth-like levels of aggregation and adjustment. We've reduced every country to a single number, and then we've adjusted it further to account for inequality.
In spite of this rather improbable method of reducing numerous countries of many millions of people into a single number, rankings like these nevertheless tend to pop up in international lists of "happiest" countries or "the best country to live in."
The US Is Too Big for These Comparisons
The whole endeavor strikes me as rather suspect, especially when dealing with a country as enormous as the United States. After all, the US is, by far, the largest country in the top rankings. With 320 million people, the US isn't really comparable to even the next-biggest "very high HDI" country, which is Germany with 80 million people. Other comparisons are far worse. Norway, for example, has 5 million people, and is thus 1.5% the size of the US.
A far more meaningful ranking system would be to account for differences across political sub-units and regions, such as the US states. As we've already seen in numerous cases, such as with incomes, life expectancy, and crime, variations are quite large across states. Some US states are places where residents enjoy remarkably low crime, low mortality, and high incomes. Other states do less well.
One aggregate number of the entire US actually tells us very little.
Aram Roston reports on how Mideast dictatorships now hire former US military personnel to form what are essentially death squads designed to eliminate the regimes' enemies:
The revelations that a Middle East monarchy [UAE] hired Americans to carry out assassinations comes at a moment when the world is focused on the alleged murder of dissident journalist Jamal Khashoggi by Saudi Arabia, an autocratic regime that has close ties to both the US and the UAE. (The Saudi Embassy in the US did not respond to a request for comment. Riyadh has denied it killed Khashoggi, though news reports suggest it is considering blaming his death on a botched interrogation.)
Golan said that during his company’s months-long engagement in Yemen, his team was responsible for a number of the war’s high-profile assassinations, though he declined to specify which ones.
Where do these kill teams come from and where do they get their training and experience? They get it from the US military and the US taxpayer.
Last month, I wrote on how the US military is becoming increasingly reliant on mercenaries to staff military operations. This makes it easier for the Pentagon to ratchet up military conflicts while still claiming that it is reducing boots on the ground. It can do this because the Pentagon doesn't report details on how many mercenaries it's using or where they are. Essentially, mercenary forces are a sort of human slush fund which allows the Defense Department more leeway in doing whatever it wants, while sharing precious little information about it with Congress or the taxpayers.
Thus, the US treasury subsidizes the creation of these mercenary forces that then become adjuncts of foreign governments. Roston concludes:
The long US wars in Afghanistan and Iraq have relied heavily on elite special forces, producing tens of thousands of highly trained American commandos who can demand high private-sector salaries for defense contracting or outright mercenary work.
He's right about that, but then makes a rookie mistake: he refers to the movement toward mercenaries as a "privatization" of war, saying, "War has become increasingly privatized, with many nations outsourcing most military support services to private contractors, leaving frontline combat as virtually the only function that the US and many other militaries have not contracted out to for-profit ventures."
I see this mistake made over and over, and everyone needs to stop calling this sort of thing "privatization." When the government hires a construction firm to build a government highway, is that "privatization" of the highway system? No one thinks that, and for good reason. Similarly, it is not privatization when a state — whether its the US government or the UAE — hires a private firm to execute some aspects of the government's wars. These wars are state-on-state wars. There may be some truly private organization at play, but they're on the receiving end of the mercenaries' violence.
Historically, we call private military forces "irregulars" or "guerrilla" forces. There's gray area there, but, broadly speaking, truly private military forces don't have a legally enforceable contract with an officially-recognized regime. They're often not loyal to any extant state, and they often don't even get paid by any organization recognized as a state. Clearly, this doesn't describe these American mercenaries who likely have a signed contract with the UAE dictators, and money is paid in return for certain killings.
This is government money, spend on a private firm to carry out a government agenda. This is not privatization.
As the number of experienced American mercenaries continues to grow — thanks to 18 years of non-stop American wars, it will be interesting to see how many Americans military contractors have their hands in various assassinations, bombings, and other killings carried out on enemies of far off regimes.