Power & Market

It's Not Just Powell

05/17/2021Robert Aro

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.

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Is Price Gouging a Problem?

Is price gouging wrong? For many, this practice does not exactly seem to be ethical. So, there is a moral angle here which suggests that raising prices of goods such as toilet paper and bottled water when a hurricane cuts off supply—and forces the market into a shortage—is not the most humane practice.

The economic angle, which is more important for policymaking, views price gouging as a regular supply-side response to a shock. The economics around this practice suggests that price gouging is not only reasonable, but it also serves many crucial economic purposes.

Why Price Ceilings Are Illogical

In free and competitive markets, prices are signals. If you have ever laid eyes upon the supply and demand graph found in Econ 101 textbooks, you understand what I speak of. Consumers demand goods based on price. Suppliers produce them after being encouraged or discouraged by the same. When governments step in and cap prices during emergencies, this signaling property of market prices under this free market mechanism is heavily distorted. Consequently, people lose the incentive to ration resources when they need to be rationed the most.

When governments jump in to “remedy” shortages during crises by enacting anti-price-gouging laws, they create unintended consequences such as hoarding. If I am a consumer who learns that a pack of twelve rolls of toilet paper has been capped at eight dollars in a situation where an unhindered equilibrium price could easily be twenty dollars for each such pack, I have every reason to rush to stores and buy many more rolls than I could use in a month, assuming my digestive system remains agreeable. What would happen if all consumers in my area made similar runs to stores? I hope this question drives the point closer to home.

You guessed correctly. Now local shelves are being emptied even faster of toilet paper rolls, and the shortage that could have been managed and mitigated has been aggravated! If toilet paper rolls are indeed 20 dollars a pack in a “disaster” market without a government-imposed cap, people will ration their stocks more judiciously and buy only what they need. Stores will be able to serve more people, thus alleviating the problems caused by the shortage.

People will spend 20 dollars on a roll only if they need it, rather than panic buying an unscientific quantity at capped prices. In trying to help disaster-struck populations, the government leaves them worse off by implementing anti-price-gouging rules.

Policymakers also need to understand that nothing is stopping a handful of people who get to the stores first from buying out the entire stock and selling them to the unfortunate majority at prices much higher than what these consumers would have paid in an unfettered local market. Since these individual “profiteers” can easily find a way to price gouge despite formal price caps, it is much better to let stores distribute essential items at a competitive equilibrium through formal channels, even if it is at a higher equilibrium price.

Supply-Side Arguments

A description of consumer responses to the capping of prices ensured by anti-price-gouging laws does not complete the picture. We must consider the supply side of production and supply during crises such as hurricanes to fully understand why price gouging is a natural, legitimate, and beneficial economic adjustment. When prices rise, producers are motivated to produce more. This increase in production, if you recall, can be observed by moving up along the supply curve.

What happens when the price of an essential item is capped in a region that needs that item much more than others? If a production manager learns of this situation, she has no economic incentive to increase the supply of that much-needed good to that particular region. Without a legal intervention that imposes a price ceiling, higher prices would naturally motivate suppliers to supply more, thus easing shortages in desperate regions.

Prior Research and Empirical Evidence

The scope and length of this article limit my ability to guide readers through a quantitative process of measuring the harm caused by legislation against price gouging. However, I would like to defer to research published by academics with a much deeper knowledge of economics and policy than I can claim to have.

Montgomery, Baron, and Weisskopf noted in a paper published in 2007 in the Journal of Competition Law and Economics that, in cases that were thought to be the product of deliberate attempts to engage in price gouging, it was actually the case that  “price increases were due to the normal operation of supply and demand and not market manipulation.”  The authors were evaluating the aftermath of hurricanes Katrina and Rita in drawing conclusions regarding anti-price-gouging laws.

An analysis of the two-month period of price increases following Rita and Katrina revealed to Montgomery, Baron, and Weisskopf the economic benefits that were realized from a lack of anti-price-gouging laws at the time in 2005. The economic damages in presence of these laws, the authors estimated, would have been between $1.5 billion and $1.9 billion.

Of course, the morality of increasing prices during floods, hurricanes, or other emergencies can still be questioned, but when governments target price gouging, morality is not the backbone of their legislation. Since economic well-being is the intended target of these anti-price-gouging laws, the best way for these laws to accomplish their goals is to stop existing. We can keep debating whether said price manipulations are the right thing to do, but at least we can have these debates without the discomfort of cutting our paper towel rolls in half (or into thirds in some cases) to fulfill our toilet paper needs.

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Is the Fed Propping Up the US Government?

04/07/2021Robert Aro

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.

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Inflation: The Art of Moving the Goal Posts

03/15/2021Robert Aro

There are two types of people who support the “inflation is low” narrative. The first type gets paid to push an agenda. The second type do not understand the Consumer Price Index (CPI) calculation. The methods behind the CPI will leave you with disdain for government intervention and a yearning for the free market.

On Wednesday the Bureau of Labor Statistics (BLS) released its monthly inflation data, a reading of 1.7% unadjusted CPI over the last 12 months. The importance of this data cannot be understated. Controlling price inflation is of paramount importance to Central Bankers. However, what if this economic data, upon which society relies so heavily, is completely false?

Starting with the CPI overview:

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a representative basket of consumer goods and services. The CPI measures inflation as experienced by consumers in their day-to-day living expenses.

Ambitious. Yet given the sheer amount of goods and services, customers, and infinite reasons for price changes, some might say such an idea is impossible to adequately measure, let alone useful to plan an entire economy.

Nonetheless, per the March 2021 release of February’s data, it begins when:

Prices are collected each month in 75 urban areas across the country from about 6,000 housing units and approximately 22,000 retail establishments… Prices of most goods and services are obtained by personal visits or telephone calls by the Bureau’s trained representatives.

Of course, it’s not enough for the BLS’s 2,500+ employees to simply collect prices of random goods and services across the nation. The data must be compiled in some way:

In calculating the index, price changes for the various items in each location are aggregated using weights, which represent their importance in the spending of the appropriate population group.

Perhaps the most overlooked, or little understood, input is the “weights” the experts assign to each item. It is here where the massaging of data has no limits.

Reviewing Relative Importance of the data dissolves any notion of credibility in the calculation:


The total weights add up to 100 (think 100%). Last reporting period, Food made up 14.107 whereas Energy was just 6.349. And yes, each month the “importance” of each item changes.

Relative importance is nothing more than a plug. If Food was 12 and energy 8, no one could argue this was more or less accurate than, say, 14 and 6. Yet such a change would have a momentous effect on inflation results. Since it’s impossible to credibly quantify the level of importance of a good in even one person’s life, it’s absurd this is done for the entire country.

Consider the relative importance of the following:

  • Rent of primary residence – 7.836
  • College tuition and fees – 1.559
  • Health insurance – 1.202
  • Cable and satellite television service – 1.182
  • Medical drugs – 1.136

To believe college tuition, one of the largest expenses for millions of Americans, is slightly more important than cable tv is a strong indicator to the impossibility of the data.

The highly suspect CPI calculation is not so much a “conspiracy theory,” as it’s simply there are too many people depending on the low inflation narrative to stay afloat. The Fed, pension plans, unions, actuarial work, treasuries, etc. all rely on the low inflation narrative to avoid the negative consequences of our reality, including bankruptcy, or in the Fed’s case, the embarrassment of having to admit mistakes.

It becomes both freeing and unfathomable, that with just a few adjustments to a computer program, the “relative importance” of items, or the basket of goods themselves change. Understanding the calculation method shows the illegitimacy of the CPI. Its purpose is to mask the truth about the world. Life has never been more unaffordable for the masses, while world debt levels are at all time highs. We can solve the mystery by saying something most know anecdotally but are too afraid to admit as it conflicts with the data: The cost of living is terribly high and is rising at alarming rates. But “inflation is low,” only because our central planners push their narrative, and by extension, their power.

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Is Accidentally Spreading a Disease the Same Thing as "Aggression"?

In my latest Mises Wire article, I argued why I believe the State—or, for that matter, the collectivity—has no right to coerce individuals into taking vaccines. However, let’s assume someone retorted as follows: “Ok, I agree the State has no right to impose vaccinations upon citizens; that said, if one person (say, A) does infect another one (say, B), then the former has aggressed against the latter—and therefore needs to compensate for the damage done. Hence, vaccination (or mask wearing, etc.) is to be considered as a legitimate preemptive measure taken upfront by the State so as to avoid aggression”. Then, how could my Rothbardian ethical stand be defended?

The fact is that, as I will briefly argue, such a counterargument can be easily proven untenable, because it misconstrues the Rothbardian definition of “aggression”—which, incidentally, seems to me the only sensible one.

So, how do we define “aggression”? An aggression occurs when A imposes his will over the legitimately acquired property of B, thus depriving B of his right to enjoy his property to whatever extent he deems appropriate.1 Or, put it differently, “an aggressor interposes violence to thwart the natural course of a man’s freely adopted ideas and values, and to thwart his actions based upon such values.”2

Now, let’s consider some practical examples of infections. First, let’s consider, e.g., venereal diseases. Would we contend that, if A and B agree to have an unprotected sexual intercourse, and A carries (unwittingly) a venereal pathogen and infects B, then A aggressed against B? Of course, we would not—at least, if we accept the definition of “aggression” I provided. In fact, A did neither deprive B of the possibility of having sex the way the latter deemed fit, nor employed violence to thwart B’s freely adopted choice of having unprotected sex: as a matter of fact, both A and B voluntarily agreed not to take precautionary measures. Thus, B employed his property (his body) how he freely chose to, accepting the risks (getting venereal diseases) involved in the course of action (unprotected sex) he freely engaged in.

Second example: fungal infection of the skin. Let’s assume A and B go to the same gym, and A (again, unwittingly) carries a fungal pathogen. Let’s assume, moreover, that the gym owner does not mandate wearing flipflop in the changing room. Then, if both A and B walked barefoot in the gym’s changing room, and B got infected by the fungal pathogen carried by A, could we assert that A aggressed against B? Of course, again, we could not, because B freely chose to walk barefoot and accepted the risk of getting a fungal skin infection.

In both cases, even though A’s behavior did—to some extent—cause, at least indirectly, a damage to B, we cannot speak of “aggression”—because B was never coerced into doing anything he did not want to. In other words, such a scenario is no different from A and B freely signing a contract regulating the employment of their properties (their bodies) and/or the physical goods they freely and legitimately rented (or bought) from a third party (the gym’s premises).

So, if we accept this kind of argument, why should things be different with covid, vaccines, masks, etc.? If A and B enter a restaurant whose owner does not mandate mask wearing, and B gets covid from A, why should we accuse A of having aggressed against B? They both freely signed a contract with the restaurant owner, and neither of them was hampered in his right to freely enjoy—to the extent he deemed fit—his property in his body and/or physical goods.

Both A and B chose where to be (in the restaurant) and their course of action (relax themselves while eating and drinking something), and freely accepted the risk involved in the consumption of the goods and services they bought from the restaurant owner. They both valued the “expected” (i.e., potential) uneasiness of getting infected less inconvenient than the trouble of wearing masks at (or getting vaccinated before entering) the restaurant.

Now, one possible counterargument against my stand could be the following: “Ok, you claim that aggression cannot occur when people voluntarily engage in behaviors involving some extent of risk. So, let’s assume B accepts walking in a dangerous neighborhood; then, if he gets robbed and/or battered by A, your argument would compel you to maintain that A did in fact not aggress against B, because B freely accepted the risk involved in walking in a dangerous neighborhood. But then, wouldn’t the very concept of aggression become (in practice) useless and unworkable?”

However, such a counterargument is obviously a fallacious one. Indeed, whereas any case of infection implies accepting some kind of (direct or indirect) contact with other people, this is absolutely not the case when B walks on the street. In fact, when B walks on the street—assuming we live in “Rothbardian-land”, with privately owned streets—he is renting some “range of motion” from the street owner. But still, B moving his body on that street does not imply (unless explicitly mentioned in the contract) that he also accepts the risk of being battered or robbed. In other words, whereas it is perfectly conceivable for B to walk on the street expecting no physical contact with A, it would—on the contrary—make no sense for B to enter the restaurant (or walk barefoot on the gym floor) without contemplating the possibility of getting infected by A.

To stress this point further, consider the difference between battery and a boxing match. In the former, if A batters B, then A has deprived B of his right to the full enjoyment of his body. In the latter, instead, A and B freely sign a contract agreeing on certain rules for the boxing match: they both are enjoying their properties (their bodies) the way the deem fit—e.g., testing their physical prowess. In fact, on the contrary, it should definitively be considered an instance of aggression if one or more third parties—e.g., the State—prohibited A and B from having their boxing match, thus employing coercion to thwart the natural course of their freely adopted choices.

Lastly, we ought also to consider that, in practice, it is impossible to tell who does actually infect whom. If (say) thirty people enter a restaurant and (say) five among them are carrying a respiratory disease, and then—say, a week later—ten more people develop the same disease, how could we know which one among the initial five infected people did infect the other ten? Moreover, if one person visits more than one place, encounters more than one infected person, and then gets infected, how could we ascertain where did he get the infection? And who did infect him?

The argument warranting State-mandated vaccination (or mask wearing, etc.) in the name of the Non-Aggression Principle is evidently untenable. Even if we set aside practical considerations, there can occur, in principle, no aggression when human beings freely engage in purposive behavior—and this holds true for activities involving infection risk as well.

  • 1. Cf. Murray N. Rothbard, The Ethics of Liberty (1982; New York: New York University Press, 2002), p. 45.
  • 2. Ibid. p. 47.
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Isabel Paterson: A Woman Whose Wisdom Could Literally Save the World

03/06/2021Gary Galles

Women’s History Month celebrates many who have made incredible contributions. But I have never seen a woman who “could literally save the world” by how she advanced liberty honored during it. It is time to rectify that omission and recognize Isabel Paterson.

Her most notable contribution came in 1943, when, according to David T. Beito, “Defenders of the free market were under siege and in decline.” But then, the “three furies” of libertarianism, as William F. Buckley Jr. called them, “[e]ach helped to build the foundation for the modern libertarian movement.” Isabel Paterson published The God of the Machine, Ayn Rand published The Fountainhead, and Rose Wilder Lane published The Discovery of Freedom. But “[o]f the three, The God of the Machine was the most explicit and sophisticated discussion of free markets, constitutional structures, and the fallacies of interventionism.” In fact, it was a letter from Ayn Rand that said it “could literally save the world.”

Ron Paul provided an example of Patterson’s influence in End the Fed when he wrote, “Having read Isabel Paterson, I was not only influenced but convinced that a philosophy that embraced personal liberty, private property, and sound money was the only political philosophy worth championing.” So it is not surprising that among her accolades Paul A. Cantor called Paterson “one of the great champions of freedom in the twentieth century” and her biographer, Stephen D. Cox, called her the “earliest progenitor of libertarianism as we know it today.” Jim Powell considers that Paterson’s The God of the Machine “secured her immortality in the annals of liberty.”

All of those endorsements make it clear that The God of the Machine’s wisdom is also important today, because freedom still has far too many defenders, among a host of attackers:

  • If everyone were invariably honest, able, wise, and kind, there should be no occasion for government. Everyone would readily understand what is desirable and what is possible in given circumstances, all would concur upon the best means toward their purpose and for equitable participation in the ensuing benefits, and would act without compulsion or default.
  • Since human beings will sometimes lie, shirk, break promises, fail to improve their faculties, act imprudently, seize by violence the goods of others, and even kill one another in anger or greed, government might be defined as the police organization. In that case, it must be described as a necessary evil. It would have no existence as a separate entity, and no intrinsic authority; it could not be justly empowered to act excepting as individuals infringed one another’s rights, when it should enforce prescribed penalties. Generally, it would stand in the relation of a witness to contract, holding a forfeit for the parties. As such, the least practicable measure of government must be the best. Anything beyond the minimum must be oppression.
  • The power to do things for people is also the power to do things to people.
  • Politics consists of the power to prohibit, obstruct, and expropriate … it always tends to encroach on the primary field of freedom, in such manner that the producer may be compelled to obtain permission before he can get to work. Where permission is required, or expropriation possible, a consideration may be extorted.
  • Government cannot “restore competition,” or “ensure” it. Government is monopoly; and all it can do is to impose restrictions which may issue in monopoly, when they go so far as to require permission for the individual to engage in production. This is the essence of the Society of Status.
  • No law can give power to private persons; every law transfers power from private persons to government.
  • Poverty can be brought about by law; it cannot be forbidden by law.
  • Now the sole remedy for the abuse of political power is to limit it; but when politics corrupt business, modern reformers invariably demand the enlargement of the political power.
  • The least practicable measure of government must be the best. Anything beyond the minimum must be oppression.
  • Men are born free … since they begin with no government, they must therefore institute government by voluntary agreement, and thus government must be their agent, not their superior … the individual has the precedent right.
  • In reason if one man has no right to command all other men—the expedient of despotism—neither has he any right to command even one other man; nor yet have ten men, or a million, the right to command even one other man, for ten times nothing is nothing, and a million times nothing is nothing.
  • Any time when finance is under attack through the political authority, it is an infallible sign that the political authority is already exercising too much power over the economic life of the nation through manipulation of finance, whether by exorbitant taxation, uncontrolled expenditure, unlimited borrowing, or currency depreciation.
  • Every politically controlled educational system will inculcate the doctrine of state supremacy sooner or later…. Once that doctrine has been accepted, it becomes an almost superhuman task to break the stranglehold of the political power over the life of the citizen. It has had his body, property and mind in its clutches from infancy. An octopus would sooner release its prey.
  • Education under the political power … once it has obtained full control … routes human energy into the dead-end political channels.
  • As now the case, [people] will even forget the larger principles they have applied, and on which their well-being depends.
  • If it were promised that from the hour of his birth no man should ever again stand in his naked skin, who is to produce the clothes? who is to have such absolute power over every person? The only condition in which no one can experience poverty, want, or fear, is that of rigor mortis.
  • If profit is denounced, it must be assumed that running at a loss is admirable. On the contrary, that is what requires justification. Profit is self-justifying.
  • If a man were paid to pick up pebbles on the beach and throw them into the ocean, it would be just the same as if he were in a “government job,” or on the dole; the producers have to supply his subsistence with no return.
  • In arguing against free enterprise capitalism, the collectivist always adopts the false assumption of a fixed number of jobs in that system. Conversely, in arguing for collectivism, he always assumes that there will be as many jobs as there are workers. The government will make the jobs.
  • Why did the humanitarian philosophy of eighteenth-century Europe usher in the Reign of Terror? … it followed from the original premise, objective and means proposed. The objective is to do good to others as a primary justification of existence; the means is the power of the collective; and the premise is that “good” is collective.
  • The biggest pests are the people who use altruism as an alibi. What they passionately wish is to make themselves important.
  • The humanitarian in theory is the terrorist in action.
  • Most of the harm in the world is done by good people, and not by accident, lapse, or omission. It is the result of their deliberate actions, long persevered in, which they hold to be motivated by high ideals toward virtuous ends.

Isabel Paterson wrote a great many things people did not want to hear. But whether those things involved pipe dreams of imagining scarcity out of existence, of government invokable as a presumed universal panacea, with magical powers over finance, rather than a ubiquitous threat to freedom, or any other delusion, social cooperation possibilities expand by thinking more accurately. As she said, “In human affairs, all that endures is what men think.” And she made a central contribution to our ability to think that can endure if we pay it heed. Perhaps that is why Ayn Rand thought The God of the Machine could “save the world.” But that hope for improvement also highlights the alternative—the risk of continuing to degrade our thinking rather than elevating it. And Isabel Paterson left us an appropriate warning of that, as well:

Whoever is fortunate enough to be an American citizen came into the greatest inheritance man has ever enjoyed. He has had the benefit of every heroic and intellectual effort men have made for many thousands of years, realized at last. If Americans should now turn back, submit again to slavery, it would be a betrayal so base the human race might better perish.

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In Search of M2

03/05/2021Robert Aro

The money supply is a vital part of the economy, yet seldom understood. Still both nebulous and contentious, the “M2 Money Stock” remains the most popular and broadest measure of money, now standing at $19.3 trillion. It’s understandable for the average person to not know much regarding its importance, but what excuse does the Chair of the Federal Reserve, Jerome Powell, have?

Before Congress, in the Feb 23 testimony, Senator Kennedy asked:

M2, the money supply is up. I think about $4 trillion over the past year, or $6 trillion. $4 trillion, $6 trillion, what’s a few trillion? It’s up 26%, the highest amounts since 1943. What does that tell you?

What reads like a joke between two bureaucrats, Powell responded:

Well, when you and I studied economics a million years ago, that M2 and monetary aggregates generally seem to have a relationship to economic growth. Right now, I would say the growth of M2, which is quite substantial, doesn’t really have important implications for the economic outlook.

And straight out of “left field,” as declared by one of the most powerful men in the world, M2 Money Stock no longer has an important role to play.

As if to reiterate, Powell followed with:

M2 was removed some years ago from the standard list of leading indicators, and just that classic relationship between monetary aggregates and economic growth in the size of the economy, it just no longer holds. We’ve had big growth of monetary aggregates at various times without inflation, so something we have to unlearn, I guess.

At last, M2 joins the ranks of other useful economic ideas we can “unlearn,” as we’ve seen with the likes of Say’s Law, the original definition of inflation, and the cause of America’s Great Depression, to name a few.

Nonetheless, there were hints, when, on December 17, 2020 the Fed announced “statistical release” changes which altered the definition of money as we know it. To be fair, this happens every few years; however, this revision appears significant as it now includes “savings deposits” and “other checkable deposits” as part of the M1 monetary aggregate. Whereas they were just part of M2 before. The frequency of reporting also went from a weekly to monthly basis, hence the M2 weekly chart has been discontinued.

The Fed even warned us:

This action increases the M1 monetary aggregate significantly while leaving the M2 monetary aggregate unchanged.

In the most Orwellian of twists, the Fed made a retroactive adjustment on May 2020, which explains why M1 Money Stock went from $4.8 trillion on April 2020 to over $16 trillion the following month, as seen below:

Per the latest release, M1 now stands at $18 trillion, just over $1 trillion shy of M2.

As for Chair Powell and the disconnect between money supply and the economy, other than measures of low inflation, his rationale remains unclear. Contrast this to the chart below, using M2 data (blue line/left axis) which began in 1959 vs. USD purchasing power (red line/right axis), indexed to 1960=100, reveals something interesting. Even without running data correlation, a purely visual perspective shows that for the last 60 years, money supply has increased while dollar purchasing power has decreased.

Of course, correlation does not equal causation. But, if money supply and purchasing power (and by extension the economy as a whole) are not inextricably linked there really should be no concern of printing a currency into oblivion, nor economic collapse that follows currency which perpetually decreases in purchasing power.

Often, we hear the importance of inflation, but rarely do we hear about it being the destruction of the US Dollar or increasing unaffordability of life. This becomes more ironic when, despite the low inflation narrative, we find the dollar’s purchasing power declines year after year.

Considering there once existed larger measures of money, being the now discontinued M3 and MZM, we’re getting much less data about the money supply when it has never been more crucial.

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In Defense of Savings

03/03/2021Peter G. Klein

I can't recall the last time I heard something on National Public Radio in defense of savings but, there it was, in this morning's Marketplace segment on Karen Petrou's new book Engine of Inequality: The Fed and the Future of Wealth in America. Savings, Petrou asserts, are the "engine of wealth accumulation." Petrou, whose work has been discussed on these pages before, identifies the Fed's massive and unprecedented monetary expansion since 2008 as a prime driver of inequality in the US.  As she explains to host David Brancaccio:

[T]he cost of being middle, even upper-middle, class, and lower- or moderate-income, has gone way up. So all but the top 10% of Americans already have more debt than assets. We don’t need more debt, we need more employment and economic growth. And we critically need savings. That’s the engine of wealth accumulation. And right now, if you put your money into your savings account, you lose money because rates are negative in real terms, and they have been pretty much ever since 2008. Saving is a losing game. Investing is a winner’s game, but most Americans aren’t in the stock market. The top 1% of Americans have over half of our stock.

Of course, the Austrians have been arguing—long before 2008!—that the engine of economic progress, not just simply for individuals but for the economy as a whole, is capital accumulation via savings and investment, not "aggregate demand" fueled by monetary and fiscal stimulus. Petrou is interested in individual and household inequality, not economic growth. Because inequality is the topic de jour among the intelligentsia, her book is getting a fair hearing. It is certainly true that the Fed's policies have exacerbated inequality and, while that is not the most important critique of the Fed or of central banking per se, it seems to be gaining popularity. Even Ben Bernanke felt compelled to respond to the criticism, albeit unconvincingly. 

Austrians including Zoran Balanc, Karl-Friedrich Israel, and Louis Rouanet have written recently about the effects of central banking on inequality. Petrou's book should help to shine more light on this debate. 

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Is Twitter Violating Contractual Agreements When It Expels Users?

02/15/2021Lipton Matthews

Liberals rarely defend the property rights of corporations, so it is quite amusing that scores of them are arguing that social media companies have the right to deplatform rogue actors. Unfortunately, by making free speech the crux of the argument libertarians have ceded the debate to liberals. Instead, we should be asking ourselves if companies can arbitrarily violate contractual agreements. When the average person signs up to become a member of Twitter, he does not view his actions as constituting a contract, but nonetheless, a binding agreement exists.

If the contract is breached by either party, then the aggrieved party is entitled to remedies. Although the terms of service agreement created by Twitter allows the platform to expel users for engaging in unlawful conduct or harassing others, it also explicitly notes that Twitter will not be responsible for tweets that offend viewers: “ You understand that by using the Services, you may be exposed to Content that might be offensive, harmful, inaccurate or otherwise inappropriate, or in some cases, postings that have been mislabeled or are otherwise deceptive.” By joining Twitter, one consents to peruse hostile content. Twitter is not obliged to protect users from controversial ideas. Using Twitter, like navigating life in general is risky. As such, people assuming that Twitter ought to be a safe place should just exit the platform.1

Twitter is a social media platform enabling different groups to share a wide variety of experiences. It does not exist to solely promote the viewpoints of liberals. Eccentric characters are free to express inaccurate positions—they may even spread dubious conspiracy theories—none of these actions are impermissible under their contract with Twitter. One expects users to exercise judgement when consuming information. Therefore, they must hold themselves accountable for failing to properly assess posts on the platform. Based on its terms of service Twitter cannot be held liable if users fail to exert due diligence. Here is an excerpt: “All Content is the sole responsibility of the person who originated such Content. We may not monitor or control the Content posted via the Services and, we cannot take responsibility for such Content.”

By genuflecting to the liberal mob, Twitter is violating agreements with conservative users, when they are expelled for not conforming to the worldview of liberals. Obviously, we can understand Twitter removing a Neo-Nazi with a criminal history from the platform, if he wants to use it as a base to organize a violent rally. But to cancel an account because the user has espoused opinions that some liberals deem to be incendiary is downright unjust. The truth is that Twitter must be sued for violating its contractual obligations to defenestrated users.

Unsurprisingly, the latest victim of Twitter is Donald Trump. Although Twitter can make an account redundant, if the user willfully advocates violence, but this does not apply to Trump. His critics clearly lack an understanding of metaphors. Many on the left have argued that Trump’s invocation of the word “fight” reflects incitement. A close reading of the text, however, indicates that his language is metaphorical: “Republicans are constantly fighting like a boxer with his hands tied behind his back. It's like a boxer. And we want to be so nice. We want to be so respectful of everybody, including bad people. And we're going to have to fight much harder. And Mike Pence is going to have to come through for us. And if he doesn't, that will be a sad day for our country because you're sworn to uphold our constitution…if you don't fight like hell, you're not going to have a country anymore.”

In this context, fight does not represent a physical battle, Trump is merely instructing his supporters to protest a perceived injustice. For example, they may challenge what right wingers refer to as the “deep state” by filing lawsuits to contest the election results. Trump had no intention to encourage violence even in his speech he implores his supporters to oppose the political establishment peacefully: “I know that everyone here will soon be marching over to the Capitol building to peacefully and patriotically make your voices heard.”

Trump is a tainted character, so liberals often use his clumsy speeches as an opportunity to guilt people into accepting their sentiments. Defending Trump automatically makes one a deplorable personality. Since most people fear social stigma, they often agree with liberals out of desperation. Though the decision to ban Trump is widely celebrated, Twitter is guilty of misconduct. As we have shown Twitter has no authority to deplatform Trump based on his speech. This entire fiasco reveals Twitter’s contempt for contractual agreements. Politically correct libertarians who argue that the First Amendment only protects citizens from the power of government are missing the point. At the heart of the saga is Big Tech’s disdain for contractual rights when users who do not subscribe to a liberal outlook are removed from social media. Libertarians must never allow their hatred for Trump to prevent them from defending the cause of liberty.

Twitter’s rules against hateful conduct are quite specific. Tweets can be removed for expressing statements construed as dehumanizing individuals based on race, ethnicity, gender, religion, national origin etc. If this threshold is not met then Twitter is in violation of its policy. It must also be stated that although such tweets may provide justification for removal, Twitter does not clearly state that users will be expelled for espousing said views. Furthermore, Twitter’s policy on misinformation addresses specific issues pertaining to misleading statements that seek to cause harm. However, if an opinion is perceived as misleading, but the evidence indicates that it is true, then twitter has no authority to deplatform users and doing otherwise would be an arbitrary violation of contractual rights.

  • 1. Twitter’s rules against hateful conduct are quite specific. Tweets can be removed for expressing statements construed as dehumanizing individuals based on race, ethnicity, gender, religion, national origin etc. If this threshold is not met then Twitter is in violation of its policy. It must also be stated that although such tweets may provide justification for removal, Twitter does not clearly state that users will be expelled for espousing said views. Furthermore, Twitter’s policy on misinformation  addresses specific issues pertaining to misleading statements that seek to cause harm. However, if an opinion is perceived as misleading, but the evidence indicates that it is true, then twitter has no authority to deplatform users and doing otherwise would be an arbitrary violation of contractual rights.
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If Congress Were Genuinely Interested in Democracy, They Would Welcome an Election Commission

01/05/2021Tho Bishop

Listen to the Audio Mises Wire version of this article.

America stands over two months after Election Day, and yet tension remains in the air over the outcome of the presidential race. Legally, little has changed. The full expectation should be—as it has from the start—that Joe Biden will end up being inaugurated later this month. Appropriately, the event will be very limited for the public.

Even still, in spite of the clear legal advantage Joe Biden has, the behavior of various institutions of power is one of growing unease. This is understandable, Donald Trump remains a populist political figure willing to take down any political leader—regardless of party—who does not remain loyal to his convictions that he was the victim of a fraudulent election. As a result, an impressive number of elected Republican officials have remained in lockstep with the president and his team on challenging the results. We are witnessing an unprecedented breakdown in political norms, and those who have long enjoyed true, unquestioned power are not reacting well to even a modicum of uncertainty.

The response to all of this is predictable. The corporate press has been firm on the line that any skepticism about the legitimacy of this election is beyond the realms of acceptable opinion. They have drawn direct connections between questioning the election and their current go-to boogeyman QAnon. Democratic politicians are calling for treating any Republican colleagues loyal to Trump on par with members of the Confederacy during the Civil War. Establishment Republicans whose political relevance has long since passed are trying to remind those still in positions of power that the proper role of political conservatives is to politely surrender to their ideological enemies or else risk the GOP losing the approval of voters who are increasingly beyond persuasion.

While it is fair to question what significant dents the Trump administration has left on policy, the significance of this backlash is worth noting. What we are seeing is a major shift of power within the GOP in which elected Republicans in Washington actually fear the Trump base more than they fear names like McConnell, Ryan, and Cheney. While this has long been clear during the theater of primaries, it has been less so in terms of votes within Washington. It took less than two years for a large class of Tea Party freshman to bend the knee to many of these same types of actors.

What is amusing is that the go-to criticism waged by Very Serious People is that the actions of Trump’s Republican Party represent some grave threat to American democracy. In reality, what we are seeing is just the opposite. Elected Republican officials are choosing to place greater value in the demands of their own constituents, over abstract concepts like the “national interest.” The process is messy, but it gives American voters the illusion of representation and self-governance.

Given that the American empire has long enjoyed democracy as a purely ceremonial act, it is not surprising that the Beltway is not well adjusted to seeing it in action. As a result, the arrogance of Washington politicians may end up doing more to undermine the perceived legitimacy of DC than any legal option that Trump ever had on the table.

For example, one option that has been proposed by Senator Ted Cruz is the creation of a commission dedicated to looking into the 2020 election and proposing steps to improve election security in the future. Historically, commissions into national controversies have been an obvious step. By their nature, the political powers that be ultimately get to decide what is and is not written, and so in practice, they effectively serve to bolster—rather than undermine—the official narrative. This is true even if you have individual investigators genuinely interested in the truth.

As such, Cruz’s proposal should be seen as an obvious and moderate position. Instead, it has been portrayed as a radical attack on democracy.

The reason is simple. Elections have become a part of our civil religion, and the “popular will” has been increasingly held up as more important than pesky inconveniences like constitutionally protected rights. To allow for a commission about the election results is to normalize questions about how our politicians are chosen in general.

So, instead of trying to treat the concerns of tens of millions of American voters with respect and empath, tomorrow we will see a bipartisan effort to dismiss these concerns entirely.

The consequences of this could end up having a remarkable impact on politics for the rest of the decade. We have seen the difficulty Congress can have in the face of simple political polarization. What happens when the federal government tries to govern a country with tens of millions of people knowing it to lack any legitimate democratic mandate?

More interesting still, what happens when the federal government tries to intervene in a state where a majority does not believe it has any democratic legitimacy?

Once upon a time, those in power were smart enough to recognize the importance of popular support and went to great lengths to help ensure a level of general consensus. While technology has made the manufacturing of consent more difficult now than ever before, it is ultimately the arrogant behavior of those in power that is sowing the seeds of true subversion of federal authority. Washington today is an increasingly isolated, imperial city, occupied by legions of mediocre and arrogant dunces who are incapable of empathizing with the sincere concerns of average Americans. Ultimately, this is a recipe for political instability and decline. 

At a time where there are many reasons to predict a lot of dire economic outcomes in the coming years, this is a political development that should be cheered on.

Just as Murray Rothbard understood.

Image source:
Ted Eytan
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