Power & Market
On the Interoperability of Ideology
Many are dismayed that the American military and intelligence complex has gone woke.
“White supremacy” brainwashing at West Point, “white rage” handwringing by the Chair of the Joint Chiefs of Staff, “cisgender millennial” CIA agents with anxiety disorders, and a “rainbow bullets” recruiting ad from the United States Marine Corps.
What happened to good old freedom and democracy? When did the American ideology switch from Uncle Sam to Drag Queen Story Hours?
There’s no need for dismay. Nothing has really changed. In the end, all ideology is interoperable. Apple pie, “Over There,” Rolling Thunder, shock and awe—there is no difference between these statist slogans and the seventy-two genders on Facebook. Ideology is ideology is ideology. The state will co-opt whatever will convince the greatest number of people to keep paying taxes and, when necessary, to die to protect the statists in their “undisclosed locations.”
There is no particularly American ideology, after all. The state takes whatever is available and twists it into a justification for its ongoing existence. Rainbow flags are not a replacement for the red, white, and blue. For the state, all emblems are, fundamentally, the same. All ideology can be switched out for all other ideology. Ideology is interoperable.
Austrians know perfectly well that the state is parasitic on the economy. The same logic applies in all other areas of human existence. The state appropriates everything it touches. The state renders the various aspects of a society in ways that maximize the state’s power. Even that which is not ideology—family, religion, human dignity, bare life—the state takes up and regulates as though it had standing in even the most intimate areas of human existence.
The officially atheistic Chinese Communist Party, for example, arrogates to itself the right to appoint Catholic bishops and to approve (or deny) the transmigration of the soul of the Dalai Lama. This is not at all strange. The state ideologizes all things. It takes whatever exists under its sway and builds a bureaucratic Faraday cage around it. No outside force can affect what the state has taken over. The state uses all things for statism, even metempsychosis and apostolic succession.
The Chinese Communist Party persecutes religious believers, but it will go to war to prevent outside states from attenuating its Buddhist and Christian prerogatives. Ideology is its own justification. Power knows no contradictions, only threats and subjugation.
States not always had this power, although they have always had this tendency. In the distant past, culture was prior to the state. A thousand years ago, only a mad tyrant would have dreamed of imposing “gay marriage” by fiat. And even then, nobody would have heeded him.
In the United States, too, cultural norms and civilizational expectations (including respect for hard work and private property, civic responsibility, and delayed gratification) lay outside the reach of the state. Personal freedom was the norm. Thomas Jefferson would have burned his vax pass with glee.
It was the rise of the nation-state and the “iron cage” of absolutist bureaucracy that turned human beings into subjects of pure ideology. In today’s America, ideology rules. Entrepreneurs serve Leviathan: Google’s contracts with the federal government are the Panopticon multiplied by Plato’s Republic. Entertainers are co-opted, too: Kim Kardashian and Lady Gaga tweet traffic information for the Los Angeles Police Department.
Newspapers offer themselves like prostitutes to politicians: a “journalist” named Franklin Foer sent a draft of his “news story” to Fusion GPS so the Clinton team could edit it for him before publication. The state has captured a myriad of other “journalists,” too.
Ancient civilizations now belong to the statists as well. The Supreme Court recently expanded the government’s control over Native American tribes. There is nothing, after all, outside the state. Ideology and the state go together. They are, in fact, the same thing.
When I was young, I learned that George Washington could not tell a lie. Now I am old, and I am learning that Anthony Fauci cannot tell a lie, either. Tearing down Washington’s statues is how the American state survives today. Yesterday’s heroes are tomorrow’s scapegoats. There is a Black Lives Matter Plaza in the nation’s capital, where once paraded the Ku Klux Klan. All ideologies the state will ingest. In-Q-Tel, Mockingbird.
I fully expect that by the end of my life there will be a military guard standing watch outside the Tomb of the Unknown Stonewall Rioter. The head of the Department of Drag Queen Affairs will lay an absolutely fabulous wreath there. The state feeds on all cultural movements, without exception.
Even the pro-life movement, I’m very sorry to say, has been taken over by the state to a large degree. Roe vs. Wade was how the state captured the emerging zeitgeist and made itself the center of questions about children in the womb (thereby turning even gestation into part of the statist oeuvre).
Dobbs vs. Jackson was how the state wrested back control of a debate that was threatening to go beyond the bounds of statist oversight. Nothing substantial changes post-Dobbs. As before, Americans are going to be fighting about abortion as a political problem. We will now be “voting” about whether the taking of innocent life is legal.
So it shall be forever. Statists condemn to the gallows. Statists wave their hands in magnanimous pardon. Prisoners seek clemency from governors. Everyone knows who runs the show.
Christ alone did not flatter Pilate. Pilate, flummoxed, washed his hands of the matter. ‘He who will not beg for my mercy is no concern of mine.’ All else is ideology. The state has taken everything and made it its own.
Even Antifa reflects the state’s power back to itself. “Anarchists” with black flags and pink hair firebomb federal court buildings and take over police precincts. What better reminder could there be of who is really in control of things? Like pilgrims around the Kaaba, Antifa circle the source and focus of their existence.
The state feeds on Antifa, in truth. It makes even so-called revolutionaries instruments of its survival. “Defund the police” campaigns look more than a little silly in the shadow of a base system spanning the globe and a military fomenting and funding wars on an ongoing, planetary basis.
This is what the state does and is. Rainbow flag, black flag, Old Glory—the state is draped in all symbols, it wears all badges, it owns all measures of resistance. This is what they mean by “Be all that you can be.”
In ten years, I wager half the current Antifa crop will be working for the CIA. That’s where the real anti-civilizational work gets done. Why piddle with Molotov cocktails when you can drone-strike Yemeni peasants?
Hippies became yuppies. Rome became Christian. Ramzan Kadyrov is Putin’s Hessian now. Many stranger things have happened. And will in the future. Because all ideology is interoperable. The state takes all of human life and makes it into raw material for endless statist expansion.
Our No-Win "Kobayashi Maru" Economy
It's time to reprogram the conditions of the economy to serve the many rather than the few.
Star Trek's Kobayashi Maru training exercise tests officer candidates' response to a no-win scenario: any attempt to rescue the crippled ship's crew results in the destruction of the candidate's ship, while standing by and taking no action results in the loss of the Kobayashi Maru's crew.
Captain Kirk famously defeated this no-win scenario by reprogramming the simulation to "change the conditions of the test." This can be viewed as either cheating or as creative problem-solving via "thinking outside the box."
The Kobayashi Maru is a very apt description of both the U.S. and the global economies, which are currently running a real-world no-win scenario called "Profits, Infinite Growth, Low Inflation, Full Employment." (PIGLIFE). To win in the PIGLIFE scenario, you need permanent expansion of GDP, consumption, profits and employment and a permanently low limit on inflation. Anything less and you lose.
Central banks and political leaders have managed to "win" the PIGLIFE scenario for decades, but at a cost that can no longer be cloaked by happy-happy statistics. The economy has been fatally hollowed out into a fragile shell of monopolies and cartels profiting from hyper-financialization and hyper-globalization, a system in which the only possible outcome is hyper-inequality and hyper-self-exploitation as the immense profits enable the purchase / capture of political and regulatory power.
Now that the PIGLIFE economy has stripmined all the easy-to-exploit resources and workforces, scarcities are pushing inflation far above the "winning" low level. Oops, you lose. Now the real teeth in the Kobayashi Maru scenario are bared: if Central banks and political leaders close the spigots of "free money" that's been expanding GDP, consumption, profits and employment for decades, then all those slide from expansion into contraction.
But if they keep the spigots of "free money" wide open, inflation threatens to feed back in a self-reinforcing loop of expectations of higher inflation that push inflation higher, which then justifies the expectations which then push prices, wages, etc. higher.
Meanwhile, the two engines of the PIGLIFE expansion, hyper-financialization and hyper-globalization, have dived off the cliff of diminishing returns. Boosting debt, leverage and globalized supply chains aren't generating expansion, they're actively undermining whatever "growth" is still sluicing through the PIGLIFE economy.
So sorry, Central banks and political leaders, you lose. The way you've rigged the system, it goes into self-reinforcing contraction if you close the spigots of "free money" even modestly. But if you don't, the Klingon ships of inflation destroy you. The more you push hyper-financialization and hyper-globalization as "solutions," the greater the destruction.
Clearly, we need a new set of conditions for prosperity and well-being that do not rely solely on expanding GDP, profits, consumption and employment. Many economists, for example, Joseph Stiglitz, have proposed retiring GDP as a measure of prosperity and well-being and using more accurate and sustainable measures of well-being to inform policies.
If we've learned anything, we've learned that enriching the already super-rich so they have even greater means to distort democracy to serve their private interests undermines the prosperity of the many rather than increases it. It's time to reprogram the conditions of the economy to serve the many rather than the few, and enable a truly winnable scenario of sustainable prosperity and well-being by tossing the "waste is growth / Landfill Economy" PIGLIFE model into the toxic waste dump of failed, no-win scenarios.
Oops, We Did it Again
Or rather, in the case of Somalia, we never stopped – and we just keep doing it!
As the Biden administration orders U.S. troops to back to Somalia in significant numbers, several things are worth noting in opposition to yet another military response to a faraway crisis of small stakes and absolutely no consequence to Americans.
First, U.S. military and intelligence operatives have been operating in Somalia continually for the past 20 years. Along with their allies in Ethiopia and Kenya, a playbook all too familiar to observers of the concurrent Afghanistan debacle was followed. Arming the warlords, asking no questions and paying no mind, led predictably to the Somalia of today. The warlords took the money, arms, and US-bestowed patina of legitimacy and set to fighting with one another and oppressing the population. Meanwhile, successive human rights abusing central governments, including the present one, enjoyed U.S. backing.
At least, until they didn’t.
Between overthrown governments, civil wars, drone attacks, direct U.S. bombardments, invasions, and the birth of Islamic extremism in the country as a product of US actions, Somalia has been unquestionably among the worst places on earth to be from George W. Bush onward – rivaled only by perhaps Afghanistan or the dystopian nightmare of North Korea.
Further, while successive administrations have been responsible for more or fewer civilian deaths and war crimes in the country since 2001, no doubt in accordance with the levels their national security councils had advised the current situation merited, the policies have been nothing but a disaster for the people living there and are yet another blight on the record of an American establishment that has produced nothing but failures and civilian casualties for twenty years.
Another thing to point out: prior to any of that, the U.S. backed the sadistic dictator of Somalia, Siad Barre. In a familiar Cold War move, principles were sacrificed to geostrategy, and the U.S. backed his brutal regime to the end. In another familiar move, it then backed various factions in the civil war it helped provoke and that has basically carried on to this day.
Lastly, just as in Afghanistan, the only thing that prevents the fall of the corrupt and hated government is U.S. backing. Reading between the lines, the situation for America’s proxies must be bleak if actual American blood is being shoved back on the line again. Mind, this is after twenty years of involvement couldn’t conclude the situation to the hawks’ liking.
As stated in opening, the stakes in Somalia are unimaginably small: whether a corrupt, abusive, and non-service providing central government can defeat a collection of homegrown Islamic fighters, which rose up as a response to the misrule of the U.S.’s chosen favorites, and who eventually pledged allegiance to al-Qaeda in order to open up funding networks through Saudi Arabia.
But never mind the facts – as one of the New York Times’ resident hawks, Charlie Savage, approvingly observed in response to the Biden administration’s announcement: the decision represented a resumption of the “open-ended” American commitment.
How much has this cost? How much will it cost in the future?
No one knows – and certainly, when it comes to the corporate media, no one even cares to ask.
One thing is certain though: between the decades of war and the famines it helped induce, the cost can’t simply be weighed in dollars. Because for Washington it’s just a matter of turning on the printing press – at least for now.
Anyone interested in reading about the details of the extent of U.S. involvement in Somalia since Ronald Reagan can find it in Scott Horton’s Enough Already: Time to End the War on Terror.
Everyone else should complain loudly as midterms are right around the corner.
Our Economy Needs a Good Dose of Customer-Driven Deflation
Inflation is created by governments, so the solution to inflation is political. Governments and cronies falsely claim that inflation is good or even necessary, when it’s neither. It’s just best for elites. Deflation, on the other hand, comes naturally when customers are in control, and this customer-driven deflation brings sustainable investment and increased productivity. This is best for everyone.
Price “stability” (stagnation) or price inflation is caused by inflation of the quantity of government money by government people and cronies.
When money is created by government people, they borrow by creating Treasury bonds. The value that the Treasury people borrow this way is taken and spent right away by politicians to favor cronies. In return, cronies contribute to politicians’ campaigns and get their favored politicians elected.
The interest on the Treasury bonds is paid by taxpayers. The principal of the Treasury bonds keeps getting rolled over into new Treasury bonds and never gets paid back. The value of this principal, along with the value of all other holdings that are denominated in dollars, eventually gets driven to near zero by inflating endlessly. The resulting inflation losses are borne by everyone who uses dollars.
When money is created by government-crony banks, they simultaneously create loan money and loan liabilities, and they loan the money to producers and customers. The fact that loans are easily available sends a false signal to producers that customers have saved money and will spend it later if producers build better processes and products, so producers make investments.
As producers and other borrowers pay back the principal on their loans, the crony banks need to eliminate their liability for this money they created, so as this created money gets repaid, the crony banks destroy it. When producers’ investments come to fruition and the resulting better products are offered for sale, the savings that customers would use to buy these products aren’t there. Such savings never were there. Because of this, some portion of producers’ investments turns out to have been malinvestment. Malinvestment compounds until some producers no longer generate the required interest payments and no longer get propped up by further government-granted privileges or bailouts.
Through money creation these producers’ plants were created, and through money destruction these producers are destroyed. Through this destruction, malinvestment generates crises. In crises as of late, cronies create even-more inflation, which is crisis inflation.
In crises in earlier times—which also were initiated by inflation of the quantity of money by government people and cronies—crisis deflation of prices has resulted from further actions by government people and cronies.
In exercising their government-granted money-creation privileges, crony banks have circulated money without holding enough reserves to cover all deposits they promise to produce on demand and to cover all bad loans. This system design is not only unconstitutional but also unstable.
Borrowers are subject to competition, and they make mistakes, and they suffer disasters. Borrowers haven’t been able to insure against every problem. Some loans have failed.
In times of such failures, depositors have understandably not trusted that crony banks have had enough reserves to stay open. Some depositors have tried to withdraw their money, creating runs on these banks. Some banks have gone bankrupt. When they have, all the assets they have listed on paper but haven’t backed by reserves have been suddenly destroyed.
This destruction of paper wealth has deflated the total quantity of money. For products to sell, producers have then needed to reduce their prices. This has deflated product prices. When product prices have been deflated, either labor prices (wages) have had to be deflated or jobs have been destroyed. With fewer dollars being used to buy and sell the same products at the same rates, each dollar has become worth more.
In general, the falling nominal wages have ended up sufficient to cover the falling product prices. But for borrowers who have had existing loans, their falling nominal wages haven’t ended up sufficient to cover their unchanged nominal loan payments and principal.
For borrowers, this midstream change in the real values of their loan payments and principal has been a substantial hardship that they didn’t create. For cronies, this change has been a substantial windfall that they, empowered by the government people, did create.
The government people, though, despite having been the root cause of this crisis deflation, haven’t required their cronies to discount the nominal loan payments and principal to make the real values match the real values that both parties had contracted to exchange.
Every borrower who hasn’t been relieved by bankers acting on their own and who hasn’t been relieved by government people restoring the original real terms has been squeezed hard. Some, and oftentimes many, have failed. These failures have left more banks with unanticipated losses, leading depositors to make unanticipated withdrawals, leaving more banks destroyed, multiplying losses much-more widely.
Crisis deflation has enabled government people to greatly ratchet up government. The 2.5-year panic of October 1839 through March 1842 ended the initially small-government Democrats’ plan to systematically greatly-limit government using three presidents over 24 years, destroying that plan after just 12 years. The 1.4‑year recession of January 1893 through June 1894 eliminated the last small-government major party by transforming the Democrats into a big-government party.
Deflation of prices can instead be achieved by keeping the quantity of money constant and leaving individual producers free to increase their productivity. Productivity increases come naturally when savers, investors, producers, and customers act freely.
Savers store up past value-added to be spent later. Saving makes investments sustainable, because when better products are produced by this investment and these loans are paid back, this earned-and-saved money will be available to spend on these products. Saving also increases the sustainable investment and learning and innovation that increase productivity, so the same quantity of money buys more and better products.
Changing over from the current inflationary regime will be simple. All that’s needed is to stop granting crony banks the unconstitutional privilege to use fractional reserves, and to transform crony fractional-reserve banks into value-adding full-reserve banks, with a few simple actions:
- Repeal banks’ privilege to hold fractional reserves.
- Create and transfer to banks the quantity of money needed to back all current deposits with full reserves.
- Transfer ownership of all bank assets to mutual funds. (Transferring ownership from the current owners is appropriate because the current owners are cronies who are accepting the banks’ crony privileges.)
- Distribute the same fraction of shares in these mutual funds to every citizen. (Some people have had much value taken from them. Other people have been stopped from adding much or any value in the first place. This dispensation provides a simple, reasonable path forward.)
Repeal won’t require government people to administer new scope by promulgating new programs. After these one-time transfers of money and ownership, government people will be required to do nothing.
The Fed was government-spawned to address government-caused panics. But once banks are required to hold in reserve all the money they’re required to pay out on demand, these panics will be fully prevented with no added controls and no accompanying variation, error, and risk.
Savers, investors, producers, and customers will no longer have to readjust their choices in response to the Fed’s every move, in addition to readjusting their choices in response to all the other, smaller changes around them. Savers’, investors’, producers’, and customers’ choices will be more accurate and optimal.
Customers, Freely-Competing Producers, and Voters Unite!
So why haven’t we gotten the government people to make these simple changes before? When the government people make these changes, all the built-up malinvestment won’t be sustainable and must fail.
For the entrenched government people and cronies, such a transition has been a genuine fight to the death of their longstanding way of life. Their unearned advantages over us would end. The cronies’ malinvestments would fail and the failed businesses would be destroyed. To block such change, these elites have constantly pushed out their narratives using every channel they control: academia, most media, and supermajorities of politicians.
But now we know what’s wrong and we know what to do about it. This time when the built-up malinvestment fails, people will again do what people usually do in uncertain times: they will start saving more. This time, though, their savings won’t be undercut by government and crony money-creation that unsustainably lowers interest rates, so this time people will keep saving more. Producers will sustainably create new jobs. Workers will choose those jobs.
What will determine the duration of this initial transition will be the durations of these overlapping initial changes to saving more, creating new jobs, and moving to new jobs. These initial new jobs can be created and filled surprisingly quickly, once enough producers start working to use this transition to their best advantage.
All recoveries’ delays and rates are determined by producers’ choices. In this recovery, producers won’t be awash in inflated money, but producers will be keenly aware of the dawning of a free, new regime. Once government actions are changed for the better, this brings good results that are politically popular, and this popularity helps hold these changes in place.
Opportunities will be everywhere; first-mover advantages will beckon. Like producers did after World War II, producers will move fast. Ongoing development of still-better jobs will proceed at a furious pace.
Price stagnation or price inflation is evidence that governments and cronies are grabbing advantages over us. Crisis deflation in years past was evidence that governments and cronies were taking advantage of us. Customer-driven deflation has been, and will be, evidence that the playing field is level and that customers are in control.
Customer-driven deflation is the economic way that we live better. The best time to get started at living better is always right now.
Outgrow Entitlements: Stop Losses, Cover Debts, and Help More
Entitlement spending, which includes administrative spending, totals 19% of GDP:
- Healthcare spending for the elderly or indigent totals 8.6% of GDP.
- Retirement income spending totals 6.9% of GDP.
- Working-age income spending for the indigent totals 3.1% of GDP.
In each category, the outcomes are far below optimal.
The fatal flaw is that our earnings aren’t our governments’ money, they are our money. We care for ourselves best and help others best when our money remains our money.
Then we are in control. We choose retirement healthcare, retirement income, and charity the way we choose everything else, by carefully shopping. We do this everywhere we can, as long as we’re free.
We produce the best ongoing outcomes when we’re free to individually control our spending in these areas. We will produce the best transition outcomes if we become free as fast as possible.
During the transition, we will be subject to one constraint: wherever governments have taken away people’s past opportunities to choose for themselves, in return the governments’ debts to these people should be settled by delivering the promised outcomes.
These principles mean that there is an optimum end state, and there is an optimal path.
Stop Losses, Cover Debts
Medicare and Medicaid prioritize treatment over prevention. They maximize demand without regard to prices. They disincentivize people from producing or buying health insurance that, like other insurance, would pay for a loss when it happens, especially the major loss of receiving a chronic diagnosis that from then on would require actuarily-sound insurance to be more costly. They disincentivize people from saving for later-in-life care.
All these characteristics result from sidelining customers by granting crony favors: licensing, certificates of need, tax treatment, and regulations.
Social Security reduces people’s incomes and stops people from saving and investing this portion of their incomes. Social Security retirement ages also contribute to employers laying off, retiring, and not hiring older workers.
Welfare spending displaces far-more-efficient, more-customized charitable assistance and increases dependency. Terrible government schools then take away the best remaining opportunity for the next generation to escape and thrive.
These coercions leave people with irreversible losses. We must make our governments immediately stop adding to these losses.
To stop adding to losses, we must put an immediate end to the ongoing accrual of even-more promised future benefits.
On entitlements taken from taxpayers and spent on retirees—Medicare, Social Security, and government pensions—taxpayers should immediately be no longer required to pay in. Younger taxpayers will have already paid in some fraction of their prospective lifetime payments, and they should eventually receive the same fraction of their promised lifetime benefits.
On entitlements taken from taxpayers and spent on indigents—Medicaid and welfare income—taxpayers should immediately be no longer required to pay in. Since this spending is taken from tax revenues, taxes should immediately be reduced by this amount, freeing up funds for individual voluntary charity giving. The current generation of indigents should continue to receive government healthcare and income. Children born subsequently should receive assistance not through governments but through charity.
On all the entitlements, stopping the associated taxation will reduce revenues. As will be described later, the resulting shortfalls will be covered by improved efficiencies and by asset sales.
To further stop losses, we must put an immediate end to the current programs’ structural problems.
On healthcare, national and state governments’ interferences with people’s free selling and buying of health services must be stopped immediately.
On retirement, retirement at younger ages and at older ages must be facilitated immediately by extending early-retirement ages to as young as people choose for themselves and by extending late-retirement ages to as old as people choose for themselves; and by adjusting payments, the same as under the current retirement ages, so that on average the same lifetime benefits are paid out to each person regardless of which retirement age he chooses.
On indigent income-support spending, intergenerational poverty must immediately be made escapable, by immediately eliminating all government-monopoly schools and all government control of schools. Bridge funding with no strings attached can follow children until charity spending by newly-relieved taxpayers gets established. But schools themselves must immediately be no longer controlled at all by governments. Schools must be fully controlled by parents as customers.
It would be fiction to take as a baseline that the current system, despite being unsustainable, would nevertheless deliver all the benefits that are currently promised.
It would also be fiction to project that the same spending as now will be required after these changes. Breathtaking improvements will come in short order; low-hanging fruit is everywhere.
Shopping slashes administrative costs and brings competition. Under competition, entitlement-provider organizations will run radically leaner; some do already even now, as noted below.
On healthcare spending, substantial fractions of the charges in the current system are for government administrators, third-party-payer insurance company administrators, service-provider organization administrators, crony product-supplier charges, and provider compliance time imposed by all those bureaucrats.
Partial gains from bypassing these costs can be seen in the lower prices and favorable price histories for various procedures like LASIK vision-correction surgery that are not covered by insurance, and for the surgeries and other medical care provided by the few current free-market producers.
On indigent income-support spending, efficient private charities routinely deliver a given amount of income support while costing donors only 36% as much.
Spending will decrease, the benefit quantities actually received will be at least as good, and the benefit quality will increase. Freed to concentrate on providing direct services, and pressed by shoppers to do this better than the competition, the best way for a producer to differentiate its brand will be to deliver the highest quality.
Since the new systems will be radically leaner, the currently-projected massive outlays will be slashed.
In addition, there will be more abundance to be shared voluntarily. With the current systems’ drain of 18% of GDP cut away, all products’ producers will have more savings to invest. Soon their people will add considerably more value, bring home more, and willingly help others more.
As mentioned earlier, the current taxes used for these programs will be eliminated, so the general-revenue taxes will fall short of covering all the residual government entitlement spending that will remain under the grandfathered old promises.
Some of this spending will be reduced by the new systems’ efficiencies, as described above.
The remaining spending will be covered by establishing markets that deliver fair-market prices for privatizing various government assets: in large part, real estate, associated mineral rights, and improvements.
That the USA government could outgrow its entitlement spending in significant part by selling its considerable assets has long been suggested by José Piñera, the architect of the Chilean government’s successful privatized (but unduly paternalistically-controlled) public pensions.
The USA national government has enumerated powers to own only very-few assets, only for limited military operations or for other limited government-specific operations. The USA state governments, if they were of republican form as required by the Constitution, would likewise have enumerated powers to own only very-few assets. But USA governments have grabbed far-more assets, and these are of great value.
Privatization is a good all by itself. Private ownership greatly improves stewardship. Monopoly-governments’ appointees have no skin in the game. In contrast, private owners have their own investments at risk. Plus, the better they manage these investments, the greater the rewards they earn for themselves, and the greater our overall wealth.
Privatization can be applied to far-more assets than generally recognized: ultimately it can be total. As a side benefit, this will reduce political conflict.
Note that to the extent that assets are purchased by foreign nationals, this will only help.
Capital investment drives modern productivity. More capital investment is better.
Foreign investment in what was initially the world’s-freest, world’s-lowest-taxed nation greatly helped the USA grow to become the world’s most-valuable economy.
The Constitution protects and encourages investment by all people. It doesn’t enumerate powers to require permits. It prohibits governments from unduly depriving persons of liberty and property. It separates powers in national and state governments, delegating all legislative power to legislators and no legislative power to executives like the Committee on Foreign Investment in the United States (CFIUS)
People produce and provide much less when they’re coerced, and much more when they’re free.
The best way to help others is not to coerce people to pay rents to government-monopoly middlemen, but to instead simply leave people free to produce and help others abundantly.
Obituary: János Kornai, Prominent Hungarian Economist
János Kornai was born in 1928, in a century of bloody and tragic twists and turns. His homeland, Hungary, was especially a dangerous place during the 20th century. Among other things, it fell under both totalitarian regimes: Nazism and Communism.
Kornai’s personal life was also shaped by that century. His father became a victim of the Holocaust. He was assigned to a special labour-service corps of the Hungarian Army, into which Jews were drafted as a supplementary force destined to perish. Kornai, however, was fortunate enough to survive the war. For him the arrival of Soviet troops literally meant liberation. No wonder that the young Kornai, who had been destined to perish, became a Communist. His turn towards Communism was heavily influenced by the reading Das Kapital in 1947. He became a journalist of the central newspaper of the Hungarian Communist party. However, one of the show trials of the Stalinist era opened his eyes and changed his life-trajectory. Kornai, the formerly devoted communist journalist, increasingly distanced himself from the regime. He became a supporter of reforms and opted for an academic career as economist in 1955. He participated in the 1956 revolt, and after the bloody re-imposition of communism by Russian troops, he abandoned his Marxist beliefs.
Nonetheless, the reinstalled regime, led by János Kádár, had increasingly distanced itself from the openly repressive practices of the Stalinist period. In this new era, Kornai could return to follow his academic work.
At the beginning of his research career, he criticized the over-centralization of state planning and argued for a more decentralized market-mimicking socialist economy. In the reform-era of the Kádár-regime, from the late fifties to the early sixties and onwards, his academic work also contributed to the regime’s cautious, limited and selective marketization and liberalization reforms. The so-called goulash socialism brought prosperity compared to the high Stalinist period in Hungary. However, Kornai was keenly aware of the internal contradictions and deep-seated problems of the so-called happiest barracks of the Soviet camp. In the eighties, he became one of the most important modern critics of the then existing socialism. His ground-breaking work, The Economics of Shortage, argued that there are deep-seated internal reasons for the inevitable and unsolvable problems of the socialist system. His analyses of the systemic malfunctions of socialism are a staple for those who really want to know why Marx's socialist utopia is inoperable and anti human. His theoretical constructs, such as deficit and surplus economy, soft and hard budget constraint, which he developed for the analysis and comparison of the ideal systems of socialism and capitalism provided an important starting point and theoretical framework for further research.
During his long academic career Kornai had arrived at a vision close to the position of Austrian School of Economics. This was primarily based on his experience in a functioning socialist system. At the same time, he became one of the greatest pro-market thinkers of our time. Despite the shared vision, he never considered himself as belonging to the Austria School, although he admitted his intellectual debt to Mises, Hayek, Kirzner and especially to Schumpeter.
The reason for the shared vision is that key figures of the Austrian School, like Eugen von Böhm-Bawerk and Ludwig von Mises at the turn of the century and in the early twenties took on the challenge of criticising Marxism and the Marxist utopia of socialism. They showed that the "scientific" work of Marx had insurmountable contradictions and socialism bound to lead to failure. Also, the members of the Austrian School contrasted the benefits of a market economy with the inbuilt problems of the utopian Marxian vision of socialism. They argued most forcefully among the economic schools that capitalism is a dynamic economic system, and this dynamism is the key to human progress. Also, the Austrians were eminent among those who argued that the cause of the dynamism of capitalism is private property, entrepreneurship and competition.
One of the last important books of Kornai’s life is Dynamism, Rivalry and the Surplus Economy. The main theme of the book is the comparison of socialism (state planned economy) and capitalism (market economy). Comparison of the economic system of the shortages with the system of the surpluses.
Socialism produces shortage, capitalism produces surplus. The basic reason for this difference, according to Kornai, is that there is no opportunity and space for innovation in socialism unless it is considered important by the centralized planning state for some political purpose. Therefore, there is no room for entrepreneurs, whose function is to apply inventions in an innovative way. In contrast, the most important feature of capitalism is that it gives the entrepreneur freedom to realize inventions and satisfy consumer demand.
Kornai’s argument is by and large the same as the position of the Austrian School of Economics. One of the major differences is the method of inquiry between the Austrians and Kornai. Menger, the founding father of Austrian school, first established that the goal of economic theory is to discover cause and effect linkages in economic life.
Kornai, using the contemporary language of positivist economic thinking, arrived at the same position that of Menger and Mises, who used a theoretical language, which is now considered outmoded by the mainstream literature. Kornai first discovers the economic facts, then analyses them and finally seeks to identify causal relationships. At the end, he arrives at basically the same positions as Menger: economic life is dynamic, the engine of dynamism is human invention and entrepreneurship, and there are cause and effect linkages, which shape human behaviour.
He would have deserved the Nobel Prize in Economics. What a pity that, with his death, he deprived the Nobel Prize Committee of the opportunity to recognize Kornai’s enormous significance not only in building economic theory, but also in undermining the scientific legitimacy of the Marxist vision of socialism and state planning.
It is even more painful that with his death he was deprived of the opportunity to educate us: interested lay readers, his fellow scholars, and last but not least, politicians. It is a pity, because the average citizens, scholars and politicians of our time are not acknowledging the benefits of capitalism but support economic policies furthering state interventionism. It is a bitter situation, as he learned through his own experiences, that state planning is a non-workable system. He forcefully argued that only a capitalist economic system can dramatically improve people’s lives and quality of life. He also believed that capitalism is also a necessary condition of democracy, and of avoiding totalitarian regimes, which were so abundant in the last century.
On Powell’s Plate
This Wednesday concludes September’s Federal Open Market Committee (FOMC) meeting. It couldn’t come at a more tremulous time for Chair Powell and the Board of Governors. As of Monday, the Dow saw massive sell off, news headlines over China’s Evergrande facing bankruptcy continued, DC is facing another debt ceiling debate and COVID continues to dominate. As for the Fed, they too have been coming under scrutiny. A CNBC headline reads:
After years of being ‘squeaky clean,’ the Federal Reserve is surrounded by controversy.
And another titled:
Fed Chief Powell, other officials owned securities central bank bought during Covid pandemic.
Those were last week's headlines as the story only recently broke. To their credit, CNBC is asking novel questions like:
Should the Fed have banned officials from holding, buying and selling the same assets the Fed itself was buying last year when it dramatically widened the types of assets it would purchase in response to the pandemic?
The security trading involved key members, such as Powell, who held municipal bonds from around $1.25 to $2.5 million. Other Fed Presidents were also named in the press. Perhaps top ranking decision members at the Fed should not be able to own the same securities they were buying through America’s central bank? It would at least remove the optics of having a conflict of interest or acting in a way that is against the public's interest.
To be clear, as far as the public is aware, no member of the Fed violated any laws. But one should always remember there is a difference between law and ethics.
Adding to Chair Powell’s agenda is what appears to be a growing divide amongst the Board of Governors over the timing of the Fed’s tapering strategy. Per CNBC:
By Goldman Sachs’ count, six officials who have spoken publicly on the issue of tapering asset purchases are for it and six are against.
Having a split board on something as large as asset purchases doesn’t make his job any easier. The voting results and minutes will reveal if they managed to work out their differences during their closed door meetings this week. And what of inflation? Do they still believe we’re living in a transitory period?
With uncertainty over Powell’s term as chair, which expires in a few months, the last quarter of 2021 promises to make for interesting news stories. As to what Biden might do, a former chief economist of the National Economic Council provided a solution:
The administration is understandably going to wait and see how the Fed handles the taper and what the markets do. That could be the determining factor in whether he’s reappointed.
An interesting feature of the Fed becomes captured: For the entity entrusted to manage the nation’s unemployment and rate of inflation, it seems we’re always concerned as to how the market, namely stock, bond and real-estate reacts to every move the Fed makes. While not in their job description, the Fed has, for a very long time, been the de facto market savior.
Should Biden, or his advisors, use market performance to judge the merits of Powell’s tenure, as the article suggests, then Powell would be confronted with another moral dilemma. Trading securities as Fed chair has already pushed ethical boundaries. But having one’s job security tied to stock market performance, when you have legal authority to increase the money supply at will, creates another set of challenges. One can only hope those in charge use more than the market’s response as a barometer of Powell’s achievement... but it must be reiterated: one can only hope.
One Way to Deal with Control-Freak Politicians
Many years ago, I had a lunatic roommate who would remove people's clothes from the laundry machines midcycle, throw temper tantrums like a child, and set the thermostat to crazy temps, among other things.
One workaround that one of my sane roommates and I designed for the thermostat problem was to go out and buy a second thermostat. We connected it to the HVAC system and disconnected the existing one but left it on the wall.
The new one was hidden behind the wall, but still accessible through a vented panel. The one on the wall was still powered—it beeped and displayed temps normally. It just was not connected to the system so it would not actually control the heat/air. It was a decoy.
The crazy roommate never figured out that the thermostat did not do anything. The belief of control was maintained, but control was secretly removed. I don't have many practical examples of how to do this, but we should do this to the government.
Give politicians, activists, and corporate media "fake thermostats" to adjust to their hearts' content, so they can exercise their tyrannical dreams without turning our lives into nightmares.
They probably won't figure it out, because they will be too busy celebrating their victories and patting themselves on the back to check the outcomes of their "policy." Even if they did check, they would probably succumb to confirmation bias and attribute the healthy, free society and good economic outcomes to their own tinkering with the fake thermostats. Our response should be to pat them on the head and say "Good job!" like we would to a child pretending to steer the car from the back seat while the adult drives.
Our Endless State of "Emergency" and De Facto Dictatorship
Listen to the Audio Mises Wire version of this article.
In a great many states and municipalities, government executives have declared states of emergency. These are in most cases mayors and state governors who first declare a state of emergency and then begin unilaterally issuing a wide variety of executive orders without consent from any elected legislative body.
Historically, these emergency periods were limited to a specific duration, often thirty days.
The Lawfare blog has helpfully summarized the emergency declaration power of most states:
- In Texas, " A state of emergency concludes when the disaster has been deemed to have passed, if the legislature decides to terminate it, or if the declaration is not renewed by the governor after thirty days."
- In Colorado, "A state of emergency cannot last more than thirty days without the governor renewing it and the general assembly, by joint resolution, can terminate a state of disaster emergency."
- In Florida, "The state of emergency cannot continue for longer than 60 days unless the governor renews it."
- In New Jersey, "A public health emergency is automatically terminated after 30 days unless the governor renews it under the described standards."
- In New York, "any action the governor takes using his emergency power must not last for longer than 30 days. The governor can renew this emergency action for an additional 30 day period after reconsidering all of the relevant facts and circumstances."
Notice a potential problem here: the "time limits" are essentially meaningless, because all that is required to extend them is for a single person—the governor in these cases—to declare the emergency extended. Even worse, the same person who declares the emergency is the one who rules by decree during the emergency.
The only possible veto in many cases exists if the state's legislative body convenes and passes a resolution to end the emergency declaration, as happened recently in Pennsylvania. Such a process, however, throws the status quo strongly in favor of one-man rule by decree. It is assumed that a single person can declare an emergency and then govern as he or she wishes with virtually no institutional opposition until the full legislature can convene and take a vote. In some states, there isn't even a clear means for the legislature to meet when it is not already convened according to the usual calendar. After all, many state legislatures only meet part of the year. Some legislatures meet only once every two years.
In practice, the system should be the reverse: emergency declarations should provide for a veto from a small legislative committee or some other group of elected officials outside the governor's office.
F.A. Hayek discusses this in volume 3 of Law, Legislation, and Liberty:
"Emergencies" have always been the pretext on which the safeguards of individual liberty have been eroded—and once they are suspended it is not difficult for anyone who has assumed such emergency powers to see to it that the emergency will persist. Indeed if all needs felt by important groups that can be satisfied only by the exercise of dictatorial powers constitute an emergency, every situation is an emergency situation. It has been contended with some plausibility that whoever has the power to proclaim an emergency and on this ground to suspend any part of the constitution is the true sovereign. This would seem to be true enough if any person or body were able to arrogate to itself such emergency powers by declaring a state of emergency.
It is by no means necessary, however, that one and the same agency should possess the power to declare an emergency and to assume emergency powers. The best precaution against the abuse of emergency powers would seem to be that the authority that can declare a state of emergency is made thereby to renounce the powers it normally possesses and to retain only the right of revoking at any time the emergency powers it has conferred on another body. In the scheme suggested it would evidently be the Legislative Assembly which would not only have to delegate some of its powers to the government, but also to confer upon this government powers which in normal circumstances nobody possesses. For this purpose an emergency committee of the Legislative Assembly would have to be in permanent existence and quickly accessible at all times. The committee would have to be entitled to grant limited emergency powers until the Assembly as a whole could be convened which itself would then have to determine both the extent and duration of the emergency powers granted to government.
As is often the case, Hayek is quite milquetoast here, assuming that the civil government ought to enjoy significant leeway in what it can do during an emergency. But even this highly moderate view of Hayek's would be an immense improvement from the current status quo, which is one in which governors can appoint themselves de facto dictators for an open-ended amount of time, and in which the only way of ending the one-man rule is for the legislature to take extraordinary measures. It's a truly odd state of affairs in a country that claims—less convincingly with each passing day—to be a country that values the rule of law and opposes the arbitrary rule of a tiny number of privileged government agents.
Oliver E. Williamson (1932–2020)
Oliver E. Williamson, 2009 Nobel laureate and founder of "transaction cost economics," has died at age 87.
As I wrote in 2009,
Oliver Williamson's Nobel Prize, shared with Elinor Ostrom, is great news for Austrians. Williamson's pathbreaking analysis of how alternative organizational forms — markets, hierarchies, and hybrids, as he calls them — emerge, perform, and adapt has defined the modern field of organizational economics.
Williamson is no Austrian, but he is sympathetic to Austrian themes (particularly the Hayekian understanding of tacit knowledge and market competition). His concept of asset specificity enhances and extends the Austrian theory of capital and his theory of firm boundaries has almost single-handedly displaced the benchmark model of perfect competition from important parts of industrial organization and antitrust economics.
He is also a pragmatic, careful, and practical economist who is concerned, first and foremost, with real-world economic phenomena, choosing clarity and relevance over formal mathematical elegance. For these and many other reasons, his work deserves careful study by Austrians.
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