Power & Market
Listening to the howls from Democrats and the applause from Republicans, one would think President Trump’s proposed fiscal year 2021 budget is a radical assault on the welfare state. The truth is that the budget contains some minor spending cuts, most of which are not even real cuts. Instead they are reductions in the “projected rate of growth.” This is the equivalent of saying you are sticking to your diet because you ate five chocolate chip cookies when you wanted to eat ten.
President Trump’s plan reduces the Department of Education’s budget by nearly 8 percent, leaving the department with “only” $66.6 billion. Cuts to other departments are similarly small, while reductions in entitlement spending consist mostly of reforms that will not affect most of those dependent on these programs.
President Trump deserves credit for proposing an $11.6 billion cut in funding for the Department of State and the US Agency for International Development (USAID). Foreign aid does little to help impoverished people overseas. Instead, it benefits foreign government officials willing to do the US government’s bidding. The State Department and USAID are extensively involved in US intervention abroad, including efforts to overthrow governments.
President Trump’s budget proposes a number of increases in spending. For example, his budget spends around 900 million additional dollars on vocational education. It also includes additional spending on items including infrastructure and childcare.
Few in DC have expressed concern over the fact that President Trump’s $4.8 trillion budget proposal is the largest budget in American history. There is also little outcry from supposedly antiwar progressive Democrats over Trump’s proposal to spend hundreds of billions of dollars on militarism. This is not surprising, as many progressives are happy to support increased warfare spending as long as conservatives go along with increased welfare spending. Similarly, many conservatives are happy to support increased welfare spending as long as it means that progressives will vote for increased warfare spending. So, Congress is unlikely to approve any of President Trump’s spending cuts, but Congress will gleefully agree to all of his spending increases.
Even if Congress agrees to all of President Trump’s cuts, federal deficits will still be over $1 trillion for the next several years. However, President Trump claims that the budget will balance in fifteen years. In order to show a balanced budget by 2035, the administration assumes 3 percent economic growth for most of the next decade. This level of growth is unlikely to come to pass. Instead, the current boom will likely end soon, and the economy will experience another major recession. Signs that we are on the verge of a downturn include rising homelessness and the Federal Reserve’s bailout of the repurchasing market.
The current economic boom is built on debt, and the debt-based economy is facilitated by the Federal Reserve’s easy money policies. The massive amount of debt held by consumers, businesses, and especially government is the main reason the Fed feels compelled to maintain historically low interest rates. If rates were to increase to market levels, government interest payments would be unstable. This would cause the government debt bubble to burst, leading to a major crisis. However, continuing on the current path of low interest rates will inevitably lead to a dollar crisis and the collapse of the welfare-warfare Keynesian system.
Continuing to waste billions on wars abroad and failed programs at home while pretending that we can avoid a crisis via phony cuts and Fed-fueled growth will only make the inevitable collapse more painful. The only way to avoid economic disaster is to cut spending and audit, then end, the Federal Reserve.
Reprinted with permission.
President Trump's pardon of Michael Milken would have delighted Murray Rothbard. Milken, who was famous for his "junk-bond" takeovers of various companies, served twenty-two months in prison for federal crimes that involved market trading. Murray Rothbard thought that Milken was a hero. As he explained in an article written in 1989:
During the 1960s, the existing corporate power elite, often running their corporations inefficiently—an elite virtually headed by David Rockefeller—saw their positions threatened by takeover bids, in which outside financial interests bid for stockholder support against their own inept managerial elites. The exiting corporate elites turned—as usual—for aid and bailout from the federal government, which obligingly passed the Williams Act [named for the New Jersey Senator who was later sent to jail in the Abscam affair] in 1967. Before the Williams Act, takeover bids could occur quickly and silently, with little hassle. The 1967 Act, however, gravely crippled takeover bids by decreeing that if a financial group amassed more than 5% of the stock of a corporation, it would have to stop, publicly announce its intent to arrange a takeover bid, and then wait for a certain time period before it could proceed on its plans. What Milken did was to resurrect and make flourish the takeover bid concept through the issue of high-yield bonds (the "leveraged buyout").
The new takeover process enraged the Rockefeller-type corporate elite, and enriched both Mr. Milken and his employers, who had the sound business sense to hire Milken on commission, and to keep the commission going despite the wrath of the establishment. In the process Drexel Burnham grew from a small, third-tier investment firm to one of the giants of Wall Street.
The establishment was bitter for many reasons. The big banks who were tied in with the existing, inefficient corporate elites, found that the upstart takeover groups could make an end run around the banks by floating high-yield bonds on the open market. The competition also proved inconvenient for firms who issue and trade in blue-chip, but low-yield, bonds; these firms soon persuaded their allies in the establishment media to sneeringly refer to their high-yield competition as "junk" bonds, which is equivalent to the makers of Porsches persuading the press to refer to Volvos as "junk" cars.
People like Michael Milken perform a vitally important economic function for the economy and for consumers, in addition to profiting themselves. One would think that economists and writers allegedly in favor of the free market would readily grasp this fact. In this case, they aid the process of shifting the ownership and control of capital from inefficient to more efficient and productive hands—a process which is great for everyone, except, of course, for the inefficient Old Guard elites whose proclaimed devotion to the free markets does not stop them from using the coercion of the federal government to try to restrict or crush their efficient competitors.
Former Mises Fellow Peter St. Onge, senior economist at the Montreal Economic Institute cowrote an op-ed in the Globe and Mail (Toronto) that highlights the increasing importance of part-time workers and the benefits they provide customers over traditional lines of work.
Casual or “gig” work has been around a very long time, but the sharing economy has put freelancers in the spotlight. It’s especially important for workers who can only work part-time: single parents, college students, the elderly, and seasonal workers. These groups have long counted on the ability to work flexible hours when they really need to, be they waiters, nannies, deliverymen, or translators.
So far, labour laws have helped by sheltering casual workers from the hassle of paperwork, and employers from the risks inherent in hiring permanent employees. Unfortunately, regulators are becoming hostile to this new job creation. California Assembly Bill 5 (AB 5), which took effect on Jan. 1, effectively turns freelancers into employees. The goal was to improve conditions for gig workers, but, in practice, it has meant the disappearance of their jobs. Mass layoffs of part-time and full-time freelance workers have occurred in the media and the film industry, with fears of more to come.
The experience of California illustrates why governments should avoid interfering in the sharing economy. Despite good intentions, forcing employers to provide benefits to contract workers risks pricing low-wage workers out of employment altogether. Studies have also shown that even when the company is paying for the benefits, the costs get directly passed along to the employees. So even workers who don’t lose their jobs end up paying for the mandated benefits through reduced wages.
Empirically, job losses from mandatory benefits disproportionately target low-income workers. A similar phenomenon occurred in Ontario where an Montreal Economic Institute study estimated that 50,000 young workers lost their job[s] in the wake of a hike in the minimum wage from $11.49 to $14 on Jan. 1, 2018.
Thank to Thorvaldur Gylfason for pointing out his 2009 article examining the economic implications of Iceland's small population of only about three hundred thousand people.
Gylfason noted how Icelandic politicians have claimed that the country's small population was "our most serious social evil," and that the critical mass for a well-functioning society must be much larger than was currently available.
But Gylfason notes:
Yet, medieval Florence and Venice flourished with 70,000 and 115,000 inhabitants. They were better situated in Europe and better served by sea lanes than Iceland was and could, therefore, easily make up for their small size through trade. Economic integration is vital to small countries. The population of ancient Athens was 200,000. Too small? Hardly.
Or take modern Barbados (pop. 300,000), independent since 1966, a prosperous and stable democracy where virtually every child completes primary and secondary school and life expectancy matches that of the US. Is Barbados too small? No. Barbados has not even felt it necessary to pool its currency with its eight neighbours comprising the East Caribbean Currency Union (ECCU, pop. 600,000). Since 1975, the exchange rate of the Barbados dollar has been kept fixed vis-à-vis the US dollar at a rate of 2 to 1 (and the ECCU, meanwhile, pegged the East Caribbean dollar to the US dollar at a rate of 3 to 1).
Is there a lower bound on population below which countries cannot stand on their own feet? Yes, but it seems to lie far below 300,000.
The answer lies in free trade. Gylfason writes:
Fuelled by free trade, small nations have increased in number. Without external trade, many small nations would be inefficient on account of their small size and would seem, on economic grounds, to need to merge with larger nations. Foreign trade relieves small nations of this need by enabling them to reap the benefits of scale and scope through trade.
This is how trade has helped increase the number of sovereign states over the years. Without vivacious trade, the costs of small size to many countries would almost surely outweigh the gains. The inability of a small country to benefit from specialisation by exploiting its comparative advantages would by itself be disastrous.
Not that everything is fine when a society is small:
Even if small countries can succeed by being open and peaceful, their small size presents challenges. Strong checks and balances are imperative in small, heavily politicised, clan-based societies to prevent relations between politics, banking, and business from becoming too cosy, not to say incestuous. Here Iceland failed. High-quality recruitment into political service and careful selection of key public officials, from abroad if needed, are also important in a small country with a small pool of appropriate local talent. Here, too, Iceland missed the boat.
But the benefits do outweigh the costs, Gylfason concludes:
Some observers at the time thought Belgium and Portugal were too small to be viable as independent countries. The tables were turned in the twentieth century when centrifugal forces prevailed, facilitated by the worldwide liberalisation of trade after World War II. Iceland attained home rule in 1904 and transformed itself from economic parity with today‘s Ghana in 1900 to parity with Scandinavia in 1980 (Gylfason 2008a). Gradual liberalisation of trade from 1960 onward played an important role in Iceland’s transformation.
One consequence of the social accord that tends to go along with small size may be a shared interest in education, as children in cohesive societies are less likely to be deprived of schooling. Countries with 300,000 or fewer inhabitants keep their young people in school a year longer on average than larger countries, in the sense that the small countries have an average school life expectancy—i.e., the expected number of years of schooling that will be completed as measured by UNESCO—of 13 years compared with 12 years elsewhere.
Another consequence of small country size, especially in a strategic location, may be that neighbours may be willing to share the costs of national defence. France spends 2.4% of its GDP on national defence compared with 1.1% in Belgium and 0.8% in Luxembourg. This tendency may offset some of the higher per capita cost of public services in small countries. Moreover, and this may surprise you, small countries tend to have less corruption than large countries as measured by Transparency International. In 2008, the Corruption Perceptions Index—which ranges from 1.4 in Somalia to 9.4 in Denmark—was 4.6 on average in countries with 300,000 or fewer inhabitants compared with 4.0 in larger countries.
As I noted in this article, both the empirical and theoretical evidence suggests that smallness is no impediment to growth and economic success. Smallness means more openness to trade, less aggressiveness militarily, and studies have shown that small countries have better growth rates in many cases.
In his book Human Scale, Kirkpatrick Sale covers this topic of the "ideal" size for a political entity. Sale suggests that an independent city or city-state probably reaches its ideal size for self-rule around fifty thousand people. He also notes that medieval cities that were larger than this tended to break themselves up into smaller, adjacent independent pieces, with the idea being that large scale breeds alienation, crime, and political dysfunction.
Today the Senate Banking Committee held a hearing for President Trump’s two most recent Federal Reserve nominees. In one chair sat Christopher Waller, vice president and director of research at the Federal Reserve Bank of St. Louis, whose dreadfully dull answers could have been the product of a bot forced to watch one thousand hours of central bank testimony. Luckily for those watching, most of the questions were directed towards the far more intriguing—and controversial—Judy Shelton.
Although by no means an Austrian, Judy Shelton’s record includes public support for a modern gold standard, criticism of the Fed’s response to the financial crisis, and even a comparison of America’s central bank to Soviet central planners. On the topic of competing currencies, Ms. Shelton once referred to Bernard von NotHaus, a man arrested by the US government for the production of silver “Liberty Dollars,” as the “Rosa Parks of monetary policy” for his willingness to challenge the Fed. Beyond monetary policy, she cited government deposit insurance as a program that risks creating moral hazard, suggested that the US could pay off its public debts by selling off assets such as the US Postal Service and federally held public lands, and even publicly questioned the accuracy of government inflation measures.
The recounting of the greatest hits of Judy Shelton offered a glimpse of what it would look like to actually drain the swamp of central bankers.
Of course, all of this was sharply—and at times uncivilly—criticized by duly elected economic midwits who sought to lecture to Shelton while desperately relying upon the prepared questions of legislative aides.
Senator Richard Shelby, at one point the chairman of the banking committee, was particularly appalled at the notion of nominating a Federal Reserve candidate so outside the mainstream. His grilling of Ms. Shelton included sagely pointing out that the amount of gold in the world is worth less than the American GDP and suggesting that the gold standard was a product of the days when the US was a “barter economy.”
Of course, it is a reflection of the dilapidated state of modern economics that Shelby’s ignorance would make him a safer choice for the Federal Reserve than either Shelton or her friend James Grant.
It is also sad to see Shelton, obviously a very intelligent woman, take the strategy of trying to sing from a more traditional script rather than take the opportunity of the hearing to defend the ideas she has long supported. Although there were times when she offered clever outs to her testimony, such as declaring that she would never want to “go back” to any previously existing monetary system (which is not the same thing as seeing a potential use for a newly priced gold backing in the future), for the most part Shelton attempted to try to present herself as a more status quo figure.
In one of the more entertaining exchanges, Senator John Kennedy of Louisiana pushed Ms. Shelton on what she would recommend if faced with an abrupt financial crisis. Her response, unfortunately, was more of the same—taking interest rates to 0, more QE. It was an answer so uninspired that it was basically repeated by Mr. Waller.
Shelton was also attacked for apparent changes in her policy prescriptions during the Trump regime.
Although she once (accurately) blasted the Obama administration for monetary and fiscal recklessness, she has advocated for more accommodative policy in recent years. One could perhaps forgive Shelton for the sin of identifying the Federal Reserve for what it really is—a political institution—but her nomination is likely to be killed by senators who prefer to maintain that the illusion it is anything but.
In fact, shortly after the hearing, Washington was already filled with whispers about her nomination already being dead.
If true, Congress will miss the opportunity to actually act on the goal that is so often given lip service on the Hill—increasing diversity on the Fed. Beyond the irrelevant point of her gender, Judy Shelton would have brought a heterodox economic perspective from well beyond the echo chamber of modern central banking. Having received her PhD in business administration from Utah State University, she is far removed from the elite institutions that are quite effective at wiping out common sense.
At least the Fed will have the addition of Mr. Waller, who can offer such pearls of wisdom as:
The fiat monetary system we have around the world works well as long as it is managed well by the central bank.
Where would America be without such invaluable insight!
Last summer when we were both at Mises University, Peter Quiñones and I sat down in the studio and talked about immigration for a full hour. I think we've provided enough to annoy both open borders people and hard-core restrictionists. I cover the horribleness of border guards, the unconvincing nature of economic arguments against immigration, Ludwig von Mises's highly practical views of immigration policy, and the real political and sociological issues potentially raised by large-scale migration.
If you haven't yet bought yourself a copy of Lew Rockwell's Against the Left: A Rothbardian Libertarianism do yourself a favor and pick one up.
But at the same time, I recommend Lew's 2010 book The Left, the Right, and the State. I don't think this book has received as much attention as it deserves, and if you like radical stuff—I mean really radical unapologetic antistate stuff—this one can be mined for all kinds of great insights.
I was recently reminded that Peter Quiñones is also a fan of Against the Left, and back in November, he interviewed Lew about it on Peter's podcast.
If you're looking for a fun refresher on why state-sponsored mass murder and impoverishment are bad things, you might enjoy this one.
This week the latest Democratic Party attempt to remove President Trump from office—impeachment over Trump allegedly holding up an arms deal to Ukraine—flopped. Just like “Russiagate” and the Mueller investigation, and a number of other attempts to overturn the 2016 election.
We’ve had three years of accusations and investigations with untold millions of dollars spent in a never-ending Democratic Party effort to remove President Trump from office.
Why do the Democrats keep swinging and missing at Trump? They can’t make a good case for abuse of power, because they don’t really oppose Trump’s most egregious abuses of power. Congress, with a few exceptions, strongly supports the president flouting the Constitution when it comes to overseas aggression and shoveling more money into the military-industrial complex.
In April 2018, President Trump fired one hundred Tomahawk missiles into Syria, allegedly as punishment for a Syrian government chemical attack in Douma. Though the US was not under imminent threat of attack, Trump didn’t wait for a Congressional declaration of war on Syria or even an authorization for a missile strike. In fact, he didn’t even wait for an investigation of the event to find out what actually happened! He just decided to send a hundred missiles—at a cost of hundreds of millions of dollars—into Syria.
We are now finding out from whistle-blowers on the UN team that investigated the alleged attack that the report blaming the Syrian government was falsified and that the whole “attack” was nothing but a false flag operation.
Is such unauthorized aggression against a country with which we are not at war not worth investigating as a potential “high crime” or “misdemeanor”?
Last month, President Trump authorized the assassination of a top Iranian General, Qassim Soleimani, and a top Iraqi military officer inside Iraqi territory while Soleimani was on a diplomatic mission. Trump and his administration tried to claim that the attack was essential because of an “imminent threat” of a Soleimani attack on US troops in the region.
We found out shortly afterward that they had lied about the “imminent threat.” The assassination was not “urgent”—it was planned back in June. Trump then claimed that it didn’t matter whether there was an imminent threat: Soleimani was a bad guy so he deserved to be assassinated.
But the attack was an act of war on Iran without a congressional declaration or authorization for war. Is that not perhaps a “high crime” or “misdemeanor”?
We are finding out that, contrary to what Trump claims, Soleimani was not even behind the December attack on US troops in Iraq. New evidence suggests that it was actually an ISIS operation attempting to goad the US into moving against Iraq’s Shi'a militias.
Fantasies about Trump being an agent of Putin or trying to get Ukraine to help him win the election are presented as urgent reasons Trump must be removed from office. Real-life violations of the Constitution and the reckless militarism that may get us embroiled in another Middle East war are shrugged off as “business as usual” by both Democrats and Republicans in Washington.
Democrats won’t move against Trump for what may be real “high crimes” and “misdemeanors,” because they support his overseas aggression. They just wish they were the ones pulling the trigger.
Reprinted with permission from the Ron Paul Institute.
Today would have been the ninety-first birthday of Burt Blumert, one of the greatest personalities of the modern libertarian movement. Burt was the indispensable man behind the scenes and was a key figure in the Mises Institute, the Center for Libertarian Studies, and LewRockwell.com. He was one of Murray Rothbard’s closest friends, and when you met him, it was easy to see why Murray liked him. He was a genial and kind person, and a source of wise counsel to all those fortunate to know him. Burt was the founder of Camino Coins and a principal figure in the hard money community. If you want to get a sense of what Burt was like, you have only to read his collection of humorous essays Bagels, Barry Bonds, and Rotten Politicians (2008). It was a source of great pride and comfort to Burt in his final illness that he was able to see this book in print. Burt helped me with good advice when I most needed it, and I will always be grateful to him for his counsel and friendship
In the free-for-all that has been the 2020 presidential campaign so far, there has been a notable absence of serious concern for liberty. The idea that gave birth to our country has been largely crowded out by spirited efforts to outdo rivals in what H. L. Mencken called an “advance auction of stolen goods.”
But those who prize liberty have a great source to turn to, which America’s founders turned to three centuries ago—Cato’s Letters, by John Trenchard and Thomas Gordon, which began appearing in the 1720 London Journal. As Ronald Hamowy wrote, “Its arguments against oppressive government and in support of the splendors of freedom…frequently served as the basis of the American response to the whole range of depradations under which the colonies suffered.” With all the campaign promises to remake government, always at someone else’s expense, and the far more frightening promises to have the government remake us, by further reducing our liberty, Cato’s Letter 38, “The Right and Capacity of the People to Judge of Government,” is particularly important to revisit:
The world has…been led into such a long maze of mistakes, by those who gained by deceiving, that whoever would instruct mankind must begin with removing their errors….
[Liberty is] but little encouraged…there being…oppressors and deceivers mutually aiding and paying constant court to each other. Wherever truth is dangerous, liberty is precarious….
Most of those who manage [government] would make the lower world believe that there is…difficulty and mystery in it…which…is direct craft and imposture: Every ploughman knows a good government from a bad one…whether the fruits of his labor be his own, and whether he enjoy them in peace and security…
The principles of government…lie open to common sense, but people are generally taught not to think of them at all, or to think wrong of them.
What is government, but a trust committed…to [those] who are to attend upon the affairs of all, that every one may, with the more security, attend upon his own? A great and honorable trust; but too seldom honorably executed…therefore a trust, which ought to be bounded with many and strong restraints…Every violation…ought to meet with proportional punishment…because indulgence to the least faults of magistrates may be cruelty to a whole people.
Honesty, diligence, and plain sense, are the only talents necessary for the executing of this trust; and the public good is its only end: As to refinements and finesses, they are often only…the arts of jobbers in politicks…playing their own game under the public cover….
[P]ublic ministers and public enemies have been the same individual men….
Ill governments…are…enemies to private property….
Every private man…has a concern in [government], because in it is concerned…his virtue, his property, and the security of his person: And where all these are best preserved and advanced, the government is best administered….
What is the public, but the collective body of private men…And as the whole ought to be concerned for the preservation of every private individual, it is the duty of every individual to be concerned for the whole, in which he is included….
[H]e who says that private men have no concern with government…is saying that people ought not to concern themselves whether they be naked or clothed, fed or starved, deceived or instructed, and whether they be protected or destroyed….In truth, our whole worldly happiness and misery are owing to the order or mismanagement of government.
It is the eternal interest of every nation, that their government should be good; but they who direct it frequently…find their own account in plunder and oppression.
["Good governors…do not consider their people as their prey."]
Cato’s Letters were widely echoed by America’s founders seeking to defend their liberty. And after decades of inflating government intrusions at the expense of our liberty, they brings us back to the essence of good government—“whether the fruits of his labor be his own, and whether he enjoy them in peace and security.” It also brings us back to citizens’ central role in the process—preventing further assaults against our rights, which protect our liberties.