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AOC IS Your Commander: The Green New Deal Is A War Economy Plan With Authoritarian Enforcement.

May 17, 2019/in Articles /by Hunter Hastings

“Until you do it, I’m the boss,” said Alexandria Ocasio-Cortez, the socialist congresswoman from the Bronx, responding to critics of her Green New Deal in February. Later that night, the freshman congresswoman doubled down on her comment, tweeting that people who “don’t like the #GreenNewDeal” should “come up with your own ambitious, on-scale proposal to address the global climate crisis. Until then, we’re in charge—and you’re just shouting from the cheap seats.”

Much has rightly been made of the Green New Deal’s fuzzy-headed utopianism and its impossible goal of reducing U.S. greenhouse gas emissions to net-zero in 10 years. But we should also pay close attention to the plan’s authoritarian impulses, particularly in light of its historical inspirations: Franklin D. Roosevelt’s New Deal and the command economy he established during the Second World War.

If proponents of the Green New Deal are serious—and there’s no reason to doubt them—then they’re proposing a return to a militaristic America where Uncle Sam’s heavy hand intervenes in all aspects of life, curtailing individual freedom in pursuit of their collectivist goals. And like the planners of the Roosevelt years, their intentions are clear and grandiose: They want the power to regiment a society of nearly 330 million people in pursuit of a pipe dream they liken to a war for survival.

‘The New Deal and the Analogue of War’

After FDR defeated Herbert Hoover in 1932, the new president rolled out his first New Deal to confront the Great Depression. Roosevelt saw the economic collapse as directly analogous to war. In his first inaugural address, he said that Americans “must move as a trained and loyal army willing to sacrifice for the good of a common discipline, because without such discipline no progress is made, no leadership becomes effective.”

Like President Woodrow Wilson during World War I, President Roosevelt and his New Dealers moved to cartelize the economy with the enthusiastic support of business executives such as Gerard Swope, president of General Electric. “There was scarcely a New Deal act or agency that did not owe something to the experience of World War I,” according to FDR scholar William E. Leuchtenburg in an excellent paper published in 1964, “The New Deal and the Analogue of War.”

The best example of this was the creation of the National Recovery Administration (NRA), which was essentially a peacetime version of Wilson’s War Industries Board (WIB). Headed by the Wall Street financier Bernard Baruch, the WIB coordinated purchases, allocated commodities, and fixed “prices and priorities in production” while guaranteeing a profit to the big business that helped fuel the war machine.

If the WIB could coordinate an economic mobilization during wartime, the Roosevelt administration thought, then a peacetime equivalent could defeat the Great Depression by mobilizing America’s productive powers. The NRA held industries to “codes of fair competition,” which set wages, working hours, and prices. By doing so, Roosevelt and his New Dealers believed they were overthrowing the cut-throat and chaotic competition they blamed for the Depression.

Companies that didn’t cooperate with the NRA were ostracized. Under the NRA’s Blue Eagle Campaign, businesses that played ball were given a blue eagle symbol for their windows and packages to advertise their adherence to the administration’s rules and regulations. Those that didn’t faced boycotts. As General Hugh Johnson, head of the NRA, put it, “Those who are not with us are against us.” Some businessmen who violated NRA regulations were arrested.

Socialist leader Norman Thomas called this “a scheme which in essence is fascist.” The NRA itself issued a report that stated, “The Fascist Principles are very similar to those we have been evolving here in America.” In 1935, the Supreme Court ruled the NRA’s “codes of fair competition” unconstitutional, saying they violating the Constitution’s separation of powers as well as the Commerce Clause. Small wonder that New Left historians accused the agency of championing a corporatist economy.

The Green New Dealers should also be wary of using the original New Deal’s Civilian Conservation Corps (CCC), which sent young unemployed and unmarried men onto federal, state, and local government lands for conservation purposes, as a model. In her defense of the Green New Deal at The Intercept—aptly titled “The Battle Lines Have Been Drawn on the Green New Deal”—Naomi Klein cites the CCC as an inspiration, noting that it began with 200,000 volunteers but then expanded dramatically due to its popularity. She doesn’t mention that the CCC was really an Army program with a titular civilian head.

Leuchtenburg points out that the CCC was “consciously devised to provide the moral equivalent to war” and that it “aimed to install martial virtues in the nation’s youth.” When the men woke up in their army tents in camp, they heard “Reveille.” During lights out, they heard “Taps.” It shouldn’t be surprising that when the draft returned in 1940, as Charles E. Heller writes, CCC alumni “provided the pretrained manpower to fill the U.S. Army’s ranks upon mobilization with men who readily assumed the role of Non-Commissioned Officers.”

The World War II Homefront

But then, the Green New Dealers seem to see that war as a model for domestic policy. In a widely lampooned FAQ document that an Ocasio-Cortez advisor erroneously claimed was a hoax, the Green New Deal is called a “10-year plan to mobilize every aspect of American society at a scale not seen since World War 2 to achieve net-zero greenhouse gas emissions and create economic prosperity for all.”

Americans should pay attention to what the country was like on the homefront during World War II. Prosperity it was not.

Unemployment did come down—to less than 2 percent—though that’s largely because more than a fifth of the U.S. workforce was conscripted and sent overseas to sacrifice life and limb. The workers who remained were focused on producing military goods, such as guns and ammunition, while consumer goods were either underproduced or not produced at all. Other goods—such as gasoline, tires, nylon, shoes, bicycles, sugar, meat, canned fish, cheese, and canned milk—were strictly rationed. Income tax rates applied to more and more people, including lower-income earners; hit confiscatory levels, with the highest marginal tax rate rising to 94 percent; and were rigorously enforced by the IRS through a new system of automatic payroll deductions.

American people did extraordinary things to win World War II, but it took an authoritarian society to achieve it—one that nobody should want to return to.

When the United States goes abroad to do widescale social engineering, that’s rightly called imperialism by libertarians and socialists alike. But when widespread social engineering is done at home through the federal government, people like Ocasio-Cortez call it progressivism and point to the New Deal and World War II to sell the plan.

When she says “I’m the boss,” pay attention. She’s describing America under a Green New Deal: a place where you’ll do as you’re told.

Production, And The Investment That Sustains It, Drives The Economy. It’s A Myth That Consumer Spending Accounts For 70%.

May 16, 2019/in Articles /by Hunter Hastings

The recently-reported 3.2 percent growth of the nation’s economy for the first quarter of 2019 was met by a wide variety of interpretations by business analysts. Some said it soothes fears of a coming downturn, while others looked below the headline figure for symptoms of weakness.

One aspect of the economy, however, that continues to be near universally accepted as an article of faith is that consumer spending makes up the overwhelming bulk of economic activity.

“Growth in consumer spending — which accounts for nearly 70 percent of the US economy — stood at 1.2 percent,” declared the New York Post. Similarly, PBS reported“One of the main factors holding back expectations is consumer spending. It accounts for about 70 percent of the U.S. economy.”

This assertion, however, is highly misleading. Economist and former Columbia University professor Mark Skousen has for years explained that GDP numbers exclude “a big chunk of the economy – intermediate production or goods-in-process at the commodity, manufacturing, and wholesale stages – to avoid double counting.”

Total spending including all stages of production more accurately reflects an economy’s actual expenditures, according to Skousen. When measuring total spending using business receipts compiled by the IRS, Skousen found that “consumption represents only about 30 percent of the economy.”

One of the key insights of Austrian economists is the emphasis on the multi-stage production structure. They recognize that the production of new goods typically involves several stages, each temporally more or less remote from the final consumer.

To use the classic case of a pencil: first the lumber must be harvested by lumberjacks, and the wood transported to a sawmill where the wood is shaved down into slats and glued together. The wood is combined with the lead, paint and eraser – each of which went through many phases of production themselves to arrive at the pencil factory.

Once completed and packaged, the pencils are shipped to retail outlets throughout the land, ready for purchase.

At each stage of production for each of the inputs, countless capital goods and complimentary goods, along with labor, are employed.

The purchase by the final consumer of the finished pencils is but a small tip of the iceberg relative to all of the money invested in the materials, factories, labor and equipment in the many stages of the production process.

As Skousen further explained, “Business spending on capital goods, new technology, entrepreneurship, and productivity are more significant than consumer spending in sustaining the economy and a higher standard of living.”

Indeed, the truth about the economy is just the opposite to what the business reporters tell us: Consumer spending is the effect, not the cause, of a productive healthy economy.

This faulty and misleading emphasis on consumer spending has been the source of destructive public policy for generations. The emphasis on “getting consumers spending again” overlooks the true foundation for economic growth: investment spending on production, as fueled by real savings.

This is especially true in times of recession. Calls to boost consumer spending to right the economic ship are misguided and harmful.

The true factor that drags the economy into recession (and keeps it there) is the sharp drop in investment spending.

For instance, according to the 2010 report of the president’s Council of Economic Advisers, private consumption spending dropped by only 2 percent from its peak in the fourth quarter of 2007 to its low point in the second quarter of 2009 during the Great Recession. Total private investment spending, however, began its much more significant drop nearly two years earlier. Total private domestic investment reached its high point in the first quarter of 2006 and then fell by roughly 36 percent to its low point in mid-2009.

Therefore, attempting to boost consumer spending is clearly the wrong approach. Diverting investment capital toward consumption spending via government borrowing only worsens the lack of investment actually causing the recession. And without investment in new equipment, factories, technology, etc., what will spur the recovery?

As economist Robert Higgs noted, “Worn-out equipment, obsolete software, ill-maintained structures and depleted inventories are not the stuff of which rapid, sustained economic growth is made.”

Jean-Baptiste Say wrote in his 1803 book A Treatise on Political Economy: “it is the aim of good government to stimulate production, of bad government to encourage consumption.” Today’s politicians would be wise to heed Say’s words.

Bradley Thomas writes at erasethestate.com where this article foirst appeared.

Here’s How We Cut The Federal Government In Half.

May 15, 2019/in Articles /by Hunter Hastings

I think the time is coming for an idea that is so old that it is new again: cutting the Federal government in half.

The idea is: cancel all Federal welfare-type programs, including all means-tested welfare programs (apparently there are over 150 of them), all healthcare-related programs including Medicare and Medicaid, all education-related, arts-related and housing-related programs, and anything else of this sort — in short, most everything except for the military, national parks, and maybe some public works. Social Security could eventually be reformed to a system of private retirement accounts, known as a “provident fund” system and in use today in over thirty countries.

No “block grants” or other such schemes. Just terminate the programs. This would make State governments responsible for all such welfare-type programs, to do as they see fit, and to impose taxes appropriately to pay for them. Give them twelve months to get ready. States like California and Massachusetts would be free to introduce the single-payer healthcare system of their dreams, while other states, like Utah or Texas, might have more private-sector-based solutions. States are active in all of these spheres already.

Congress could make this disappear overnight.

For a long time, such proposals have been on the outer fringe of political possibility. We have been in a period of political stasis, where things haven’t changed much. Basically, today we have a spending structure that was built in the 1960s and 1970s, and a tax structure that was built in the late 1980s/early 1990s, with a few minor tweaks along the way. In the meantime, other governments have had huge changes. Some abandoned centrally-planned Communism and adopted free-market capitalism. Some implemented “flat tax” reforms, using ideas developed in the U.S. I think our period of policy stasis is coming to an end, and that we too will find it easier to make big changes soon.

I think such a proposal would split both the Right and the Left. On the Left, some would jump at the chance of implementing policy at the State level, where there is often broad consensus on these matters and much could be accomplished quickly. On the Right, many would be overjoyed at the prospect of returning to American small-government ideals. Also on the Left, and the Right, we would find a large cohort of people who are basically attached to the big government status quo, and are enjoying their position as a parasite on the belly of the Leviathan. But if the former are in the majority, and the latter in the minority, we could get it done.

This would leave Federal spending limited to: the military, debt service, retirement benefits for Federal employees, and “everything else.” This too could eventually be cut in half over time. At present, these categories constitute 38% of Federal spending, or 7.9% of GDP.

This reduced spending commitment could be funded with a much simpler tax system. To produce revenue of 7.9% of GDP, a single, a simple tax like a 10% Federal sales tax or VAT would suffice. No more Federal income or payroll taxes. This should probably be codified in a Constitutional Amendment, modifying or eliminating the Sixteenth Amendment.

Of course, these reductions in Federal taxing and spending would be accompanied by increases in State taxing and spending. However, these new State-level spending programs would reflect our present ideals and state of knowledge, and be more sustainable, effective, and appropriate than today’s legacy programs. Related government bureaucracies would be relatively lean and efficient, simply because they are new. Successful solutions could be imitated, and mistakes learned from. Competition between States would help governments to stay effective. Dissatisfied people could migrate to States where other like-minded people have gathered.

State politics would get very exciting. They would also get a lot more democratic, because each representative of State congress has a much smaller constituency than Federal congresspeople. Each member of the Massachusetts State Assembly, for example, has about 41,000 constituents, while each member of the U.S. Federal House of Representatives has about 760,000 constituents. Plus, their offices are probably near your house.

At the Federal level, the effectiveness of Congress would be much improved, because they would have a far simpler agenda.

Conservative scholars will recognize that this is the original form of the U.S. Federal government. The Constitution provides for certain “enumerated powers” of the Federal government. Basically, they are related to foreign affairs: the military, foreign policy, international trade and tariffs, immigration and naturalization, acquisition of new territory, related debt issuance, and taxes to pay for these functions. All other functions of government were to be left to the States, who might, in turn, devolve them to counties or municipalities. In general, the principle was that all government functions should be addressed at the most local level possible. While the Federal government’s functions were tightly constrained, State governments could largely do as they liked, limited by their own State constitutions.

The Constitution also effectively banned direct taxation such as an income tax, reflecting a long tradition in the West regarding direct taxation as a form of tyranny. The ancient Greeks embraced this principle, as did the ancient Romans after them. It was also a principle of the British. The first known income tax in Britain was in 1404. It was considered such a monstrosity that all records of it were burned, to conceal the possibility of such evil from later generations. Britain largely avoided direct taxation until the Napoleonic Wars of 1793-1815. An income tax (with a 10% rate) was introduced in 1799 to fund the military during wartime, but immediately after peace, the tax was eliminated. Again in 1816, all records of the income tax were burned, and Britain returned to a system of indirect taxation — basically, excises (sales taxes on individual items) and tariffs.

Likewise, in the United States, the Federal government funded itself with excises and tariffs until the introduction of the income tax in 1913. This reflected communistic and socialistic impulses that were rising at the time — Karl Marx, in the Communist Manifesto of 1848, said that a “graduated” (multiple rates) income tax, at high rates, was necessary for the proper development of communism. But it also reflected dissatisfaction with the rather difficult and problematic system of excises and tariffs common at the time. Since 1913, several new developments in taxation have emerged that are far better than the Marxist income tax. These are the modern retail sales tax, developed in the 1920s, and the Value-Added Tax, developed in the 1950s. With these newer forms of taxation, we can now effectively return to the original Constitutional ideal of a Federal government funded with indirect taxes only.

On the spending side, the Federal government largely stuck to its original Constitutional form (with the exception of Social Security) until the 1960s. Not until then did the welfare state balloon at the Federal level, with the introduction of dozens of means-tested welfare programs, plus programs in healthcare, education, housing and so forth. Before then, these sorts of programs were entirely a matter of State policy. Already by the 1920s, many States had introduced several welfare-type programs, along with programs in education and so forth.

We would basically be returning to our original Constitutional principles — principles which made the United States the most successful country in the world in the 1789-1970 period, with the broadest and wealthiest middle class the world has ever known. Since 1970, the U.S. has become a country that needs to be made great again.

This may seem like fantasizing today, but as debt, deficit and entitlement issues intensify, the path of least resistance is likely to be toward higher taxes and “easy money” — with outright money-printing to fund the deficit now a serious topic of conversation. This is exactly contrary to what I have called the “magic formula” — and my latest book, The Magic Formula, documents the long history of countries that have destroyed themselves by this method. This plan is easy, effective, and likely to find fans from both the Left and Right. Congress might grasp it as a quick escape from the daily torment of their present problems. Or, perhaps we will have a big crisis; and then we will need a plan to recover from that crisis. Either way, a return to our Constitutional principles, proven by two centuries of world-beating success, is a better plan than anything anyone else is likely to invent.

Half The Economy Is Classified as Highly Regulated. To Unrig The Capitalist System, We Must Get Government Out Of The Way.

May 14, 2019/in Articles /by Hunter Hastings

Once again, some leading capitalists are worried about capitalism’s future, as indeed they should be. Their voices join those of critics from the left who think America’s version of capitalism is rigged. And rigged it is.

Recently, JPMorgan Chase CEO James Dimon and large hedge-fund manager Ray Dalio expressed concern about the health of American capitalism. First off, major political voices and freshly announced presidential candidates are highly critical of today’s capitalism, some to the point of endorsing socialism. They are getting a lot of attention and enthusiastic support.

Second and more tellingly, the two capitalists agree in part with capitalism’s critics. As they see it, plenty of people are smiling while closing loans on their second mansions, but a lot of ordinary people are not sharing in capitalism’s prodigious outpouring. More central to their concern, Dimon and Dalio see a hamstrung federal government incapable of doing anything about it.

Of course, economic systems evolve, and business historians have given more than a handful of monikers to America’s capitalist system. In the industrial heydays when automobiles were first produced in large numbers and steel mills pumped out miles of railroad track, we had “industrial capitalism.” When the ability to raise large amounts of capital for giant enterprises became critical, “financial capitalism” was born. And following the Great Depression and the regulatory remedies to counter it, the name changed to “government capitalism.”

Whatever affected capitalism the most got added to its name. In its current mode, we might accurately call our system “regulated capitalism,” and it is becoming more so.

Between 2000 through 2016, the number of regulatory restrictions written into the Code of Federal Regulation for all industries, as reported in the Mercatus Center at George Mason University’s RegData tally, has risen from a staggering level of 857,793 to 1,083,318. That’s a 26 percent increase.

Here’s another way to look at it: The share of American employment accounted for by economic sectors that might be termed “highly regulated”—including education and health, finance, government and utilities—rose from 31.5 percent in March 2000 to 49 percent in March 2019.

The system is rigged, you say? That’s where much of the rigging takes place. Half the U.S. economy is now heavily intertwined with Kudzu vine-like regulation that claims to remedy problems yet favors big, influential businesses and snuffs out creativity.

So yes, the critics are correct. Sadly, it seems, some call for the dog that bit them: More regulation.

How does regulation equal rigging? First and foremost, large corporations or businesses are better equipped to lobby government than us little guys. Successful encounters in congressional and regulatory offices are critically important for firms weighing whether or not to venture forth with new products and expanded plants.

And coincidentally, those powerful, favor-seeking businesses actually gain market power when a new regulatory fence is raised. In addition to their outsized influence in crafting regulation, they are better able to bear the costs than their mom-and-pop competitors.

As a result, larger firms and organizations and their CEOs are prospering relative to smaller ones. And not just firms like Amazon, Uber, Lyft, and General Motors. Included among the regulatory favor seekers are regional hospitals, universities, and the operators of major retail chains. As these larger entities prosper, smaller organizations without lawyers on standby scrap for survival.

So yes, those who say the system is rigged are dead right. But breathing new life into it will require more than just cutting back the regulatory vines—that necessary first step is already underway in the Trump administration. Reinvigorating American capitalism will require clearing a wider path for new growth and replacing the vines with the right kind of nothing.

Who knows? Maybe, just maybe, regulated capitalism will be replaced with free-market capitalism.

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University College of Business and Behavioral Science.

Four Reasons Why Entrepreneurial Action Is The Most Desirable Route To An Improved Society.

May 13, 2019/in Articles /by Hunter Hastings

In dealing with our dissatisfaction with the world, we turn to some kind of action.

As Mark Manson said:

“If you’re stuck on a problem, don’t sit there and think about it; just start working on it. Even if you don’t know what you’re doing, the simple act of working on it will eventually cause the right ideas to show up in your head. Action isn’t just the effect of motivation; it’s also the cause of it.”

Some of us might choose political action – voting, supporting a political party, protesting in the street. Others might choose social action at home or at school, and still others might choose workplace action.

The best form of action is entrepreneurial action. In America, we tend to think of entrepreneurship as starting a business, or owning or managing a small business, i.e. earning an income and building wealth through individual initiative rather than the dependent route of taking a job offered and controlled by an employer. But entrepreneurship can be viewed more broadly as being enterprising: assessing the present, and taking individual action to modify it to achieve personal objectives in the future. Entrepreneurship is synonymous with individual action – often arduous and difficult action which is valiantly undertaken – to make the world a better place. This better future is never pre-determined, but instead the entrepreneur imagines it as a possibility and creates it step-by-step.

Entrepreneurial action is not political – that would involve collectively fighting with others and aiming to take something away from them in order to redistribute it to one’s own group. It’s not social, in the sense that it is constituted by individual initiative; social benefits may emerge as the result of the workings of the invisible hand, but social goals do not drive entrepreneurial action. And it is not the workplace action of employees aiming to change their workplace.

Entrepreneurial action recommends itself on multiple fronts.

Entrepreneurial Action Aims Specifically At Creating Value For Others.

An entrepreneur creates economic opportunities (Peter Klein link) by identifying the dissatisfactions of others. Observing such a dissatisfaction, the entrepreneur imagines ways in which it can be removed and replaced with an improved experience. If they can bring the improvement to a customer successfully, they receive the appropriate marketplace reward, which is both economic and psychic – the good feeling of having improved another’s life in a way that is valued, and having successfully achieved their own economic goal.

In general, entrepreneurs are people who see the world as it is, imagine a better one (through the lens of others – potential customers), and bring it about. Entrepreneurship is creative action to help others, and serves the quintessential social function that makes life in society possible by adjusting and coordinating individual behaviors.

The Values-Based Entrepreneurial Ethic Is Highly Moral.

Entrepreneurs alleviate situations of need. Those can be customer needs or community needs or all kinds of other needs. The entrepreneur is someone who fixes them, and seeks a reward, either monetary or psychic or both. The entrepreneur is a creative actor driving the dynamic process of social coordination, in which the highest values are not those of economic efficiency but of the pursuit of good. People live their lives in the pursuit of their highest values, and entrepreneurs, alert to the needs that customers feel as they engage in the pursuit, seek the best way to help them. In such an entrepreneurial world, concepts of justice are not constructed on questions of distribution, but on the capacity of entrepreneurs to seek, discover and alleviate situations of need. The entrepreneurs who prove most adept at this social coordination function are the ones who reap the greatest rewards, which become their private property to save, spend or re-invest.

Entrepreneurship Makes Every Individual More Valuable.

Large corporations work hard to make their employees less valuable. They’d prefer lower wages for their workers, and they aim to standardize work so that any worker is interchangeable with another and, eventually, can be replaced by a robot or by software. Corporations intentionally devalue people. It’s true in regard to their customers, as well. They’d like to reduce customers to data sets and information profiles that can be analyzed, averaged, aggregated and manipulated so that digital methods can be used to maximize the cash flows that emanate from them. The trend is to depersonalize and to deny individuality.

Entrepreneurs first seek to make themselves more valuable to others. They seek to understand others’ needs and to serve them with a superior product or service to address those needs. Entrepreneurs are always trying to add to their own knowledge, expand their own capabilities, and to augment their own capacity in order to do a better job of serving others. They’re lifelong learners and avid skill gatherers. If they invite others to join their team, they treat them the same as they would treat themselves: make them as valuable as possible in order to have the capacity to create more value for customers and thus help the business grow.

Entrepreneurship Is An Alert, Discovery-Oriented Activity Aiming To Enhance Everyday Life For Everyone.

Entrepreneurs are always searching for what’s new, different and better, as judged by their customers who are the people who determine the entrepreneurs’ success. This is not dog-eat-dog competition where each one is trying to beat the other and win. This is collaborative striving for the best possible way to meet customer demands. It’s what drives technology and industry and the economy to higher and higher levels of performance. And, since the customer is the entrepreneur’s boss, it is customer goals after which entrepreneurs strive. Customer goals are for a better life: more comfort, more convenience, more capability, more confidence, more achievement, more excitement, more entertainment, more love, more peace. Entrepreneurs live to deliver these things. They’re in continuous discovery mode, alert to what’s new and better, on behalf of others who will be grateful when the discovery is brought to them.

How would you like to make yourself more valuable? What problems would you like to fix? You can do it by taking entrepreneurial action.

Republicans And Democrats Both Love The Monetary Socialism Of The Federal Reserve.

May 12, 2019/in Articles /by Hunter Hastings

While conservatives, led by their leader President Trump, are railing against the Democrats for their devotion to socialism, the current controversy over the Federal Reserve shows us, once again, that conservatives are as devoted to socialism as liberals (i.e., progressives) are.

As Richard Ebeling explains in his FFF ebook Monetary Central Planning and the State, the Federal Reserve is based on the concept of central planning, which is a core feature of socialism. Federal bureaucrats at the Fed plan, in a top-down, command-and-control fashion, the monetary policy that affects hundreds of millions of people, including determining the quantity of money in society.

It cannot be done, at least not without monetary and financial chaos and crises. Central planning is an inherently defective paradigm. Just ask anyone who lived in the Soviet Union. The reason is because the planners, no matter how brilliant they might be, simply lack the requisite knowledge to plan something as complex as money, especially in an economy as sophisticated as that of the United States.

Money, of course, serves as a way to facilitate trade. Given the inefficiencies of barter, people use money as an easy and efficient way to sell and acquire goods and services. In a market, people’s valuations are constantly changing, owing to constantly changing circumstances. Those constantly changing valuations apply to both the things that are being bought and sold and to the money that if being used to facilitate the exchanges.

There is no way that central planners can take all of those constantly changing valuations into account when doing their planning. The result is crisis and chaos. That’s why the U.S. has experienced a never-ending series of bubbles and bursting bubbles. It’s why the U.S. has had a constantly devaluing dollar ever since the Fed was established in 1913. It’s why gold and silver coins, which were the official money of the American people for more than a century, no longer circulate as money. It’s why there was the big stock-market crash in 1929, which led to the Great Depression.

The Federal Reserve has been and is the root cause of all this monetary chaos and crises. That’s what central planning does. That’s what any socialist system does.

So, what do conservatives and liberals say about all this? They both remain wedded to this socialist institution, notwithstanding the fact that it is inherently defective and has been so destructive to the liberty and well-being of the American people. They say that all the chaos and crises are the result of America’s “free-enterprise” system. They think the Fed is the solution to the woes that they feel are caused by “free enterprise.”

Consider President Trump. He wanted Herman Cain and Stephen Moore to serve on the Fed. Trump’s reason for appointing those two individuals? He was confident that they would keep interest rates “low,” which would ensure that the financial bubble that the Fed has been inflating since the last bubble burst in 2008 won’t burst before the 2020 presidential election. Trump has also been jawboning the Fed, which ostensibly is independent of the executive branch, into keeping rates low for the same reason — a bubbling economy will garner him votes.

Meanwhile, progressives are criticizing Trump for nominating Cain and Moore and for berating the Fed. For example, in yesterday’s New York Times former Obama Treasury official Steven Rattner has an op-ed entitled “Don’t Let Trump Mess With the Fed,” in which he takes Trump to task for interfering with the independence of the Fed. In the process, Rattner states, “Of course, the Fed doesn’t get it right. (It famously missed the dangers of the credit bubble in 2007.)”

Because Rattner, like Trump, is trapped within the central-planning box, he just doesn’t get that credit bubbles and other monetary chaos and crises are inherent to the Federal Reserve. He doesn’t understand that monetary central planning will never “get it right” because central planning can never “get it right.”

And that’s really the big problem with conservatives and progressives — their minds are so mired in statism that they can’t even conceive of the alternative — a free-market monetary system, one in which there is no monetary central planning — no monetary socialism — no Federal Reserve — a monetary system in which the state plays no role whatsoever — a system in which there is a total separation of money and the state.

The Austrian economist Friedrich Hayek called such a monetary system “the “denationalization of money.” In a free-market system, what would be used as money would be determined by people in the marketplace. The supply of money and the demand for money would be determined by market forces, just like everything else. Hayek pointed out that central planners suffer what he called a “fatal conceit” in convincing themselves that they can centrally plan complex economic and financial activities.

A genuine free-market monetary system would bring an end to the chaos and crises that are produced by monetary socialism. More important, it would be consistent with the principles of a free society, one where the government lacks the power to plunder and loot people through the debasement of currency.

Just don’t look to either conservatives or liberals for ending the Fed and bringing a free-market monetary system to America. Their minds are simply too mired in monetary socialism to enable them to break out of their statist box. To break out of that box and move toward liberty, people must look to libertarianism.

Welcome To Turn-Key Capitalism And Functional Markets In A Box!

May 11, 2019/in Articles /by Hunter Hastings

Adapting to change is the key to survival. Social systems must be able to serve people in periods of stability, by creating predictable patterns of rules and expectations, and to serve people in times of disruption, by fostering innovation and entrepreneurship without breaking down.

In evolution, the tension between these two imperatives—the need to match features to specific settings, and the need to adapt quickly to unpredictable changes in circumstances—is the driving force that explains survival. The dinosaurs ruled much of the planet because they were adapted to the environments they lived; mammals took over because their smaller size, fur coats, and fast metabolism let them adapt to changing circumstances.

In human societies, disruptive changes are internally generated. Competition among societies, and innovation within societies, generates change that has to be managed by institutions. Since these institutions are often the products of the need to generate stability and predictability, managing fundamental change can be a problem.

The Ottoman Empire lasted for more than 600 years; it was stable and internally peaceful. On the other hand, this stability was purchased at the price of economic stagnation, and retarded progress in the sciences, of a dozen nations. As my Duke colleague Timur Kuran argues, stability and coherence alone are not enough.

On the other hand, the activities of Enron Corporation showed that rapid adaptation, moving ahead of the ability of market institutions or property rights to adjust, can be catastrophic. The Industrial Revolution wiped out social and cultural institutions and traditions on a wide scale.

Some analysts (including me) are now arguing that we are on the threshold of similarly disruptive changes. The nature of work, our sources of income, and the way we own and use things may be profoundly different in just a few decades.

Saltation

One kind of disruption, which in my book Tomorrow 3.0 I called “saltation,” is mostly—though not entirely—good, because it means that the institutional and legal preconditions for development in poor nations will no longer be necessary. The word “saltation” is rarely used in conversation. It means an abrupt movement or transition, or (in evolutionary terms) a sudden discontinuous jump in a line of descent.

Much of what we think we know about development, entrepreneurship, and the function of government and markets is based on certain assumptions about institutions and preconditions. Software will allow even a nation with a corrupt government and police force, rudimentary banks and broken capital markets to produce useful services. Development economists have long told developing nations that they must follow a particular path of rule of law, independent judiciary, financial system, and so on. This essentially material, marginalist notion of “stages” of development is clear in Karl Marx, who said “The country that is more developed industrially only shows, to the less developed, the image of its own future.” (Capital, p. 13).

But what if blockchain apps and cryptocurrency could simply operate on top of a corrupt system? Turn-key capitalism! Functioning markets in a box! Or an “app,” at least. The reduction in prices, and the availability of an increasing variety of services and activities for free, or for a very low cost, is likely to provide a platform for leapfrogging the traditional stages of development and the usual institutions required for starting and running a business. This jumping will disrupt the banks, the courts, the political entities that try to regulate and control business activities, but it will also allow people in nations that lack financial intermediaries, a system of law, and state capacity to provide infrastructure to become competitive.

Separation

The other kind of disruption, which is already commonly called “separation,” is mostly—though not entirely—bad, because it means that many people will be left behind, in most cases through no particular fault of their own, and will be relegated to second class status in wealthy nations.

I’m not convinced that separation is inevitable; much of the discussion of the “stagnation” of the total compensation of the middle class has ignored the dramatic decline in prices for many goods and services, especially on-line platforms such as Facebook, Twitter, and Wikipedia. Still, it’s true that software is replacing a lot of service jobs, and this may continue for years to come.

I have argued that the key feature of the new economy is the commodification of excess capacity. Like the commodification of labor in the 18th and 19th centuries, this may result at first in a “stretching” of the income distribution. Those without knowledge of how to gain access to programming skills, and who don’t have durables, such as cars for Uber or houses for AirBnB, may find themselves in a difficult position economically.

The three most important impacts of the new “sharing” economy are likely to be:

(1) a dramatic reduction in the amount of physical stuff, in the form of consumer durables, being produced in factories by workers.

(2) an equally dramatic decline in the cost of having access to a variety of stuff, and a sharp reduction in costs of storage.

(3) an ambiguous, but unsettling, effect on real wages, with both the direction and variance of real wages very much in flux.

Over the last twenty years, two things have happened in U.S. manufacturing: The total number of jobs in manufacturing has fallen from about 18 million to just over 10 million. But the total value of manufacturing has increased steadily. This increase in productivity is good; in fact, it’s great!

The problem is that it means that there are fewer people working in these kinds of jobs. In the past, the service sector has taken up the slack, but it’s not clear that will happen this time. The reason is that, as Marc Andreessen famously said back in 2011, “Software is eating the world.”

I don’t have a crystal ball, and I have shown in the past that I am terrible at making predictions. So I won’t make you laugh by drawing conclusions. But I will say this: if there is a way to encourage saltation, because it levels the differences between developed and less developed nations, we should explore. And if there is a way to mitigate the harmful political effects of separation, we should explore those, too.

People fear change, because they don’t know what to expect. As a society, if we can ease the adaptation to changing circumstances, we may be able to do a much better job of accommodating a future that is coming whether we like it or not.

This article appeared at AIER.org on May 1, 2019.

Progressives And Conservatives Both Misunderstand The Economy. It’s The Result Of Individuals Pursuing Their Own Goals.

May 10, 2019/in Articles /by Hunter Hastings

There are many different ways to distinguish libertarians from progressives, progressives from conservatives, and conservatives from libertarians. Here’s one of my favorite ways. Both progressives and conservatives regard the country to be an entity with purposes. In contrast, libertarians understand that the country (as opposed to its government) has nothing that can meaningfully be called “purposes.”

You as a sentient individual have purposes. (“To graduate from college and to have a fulfilling career.”) Your family can meaningfully be said to have purposes. (“To raise the children well and live debt-free.”) Your business has a purpose. (“To earn as much profit as possible by making and selling better mousetraps.”)

An economy, according to its original Greek meaning, is the material affairs of a household. Economics — “oikonomia” — means “household management.”

Wikipedia reports that Aristotle, in his Nicomachean Ethics, defined “the word ‘economy’ as ‘the art of household management’.” Each household can be run well or poorly; when run well, it is run “economically.” The household’s means — its space, its furniture, its appliances, its inventories of food and drink, its time — are used to promote as many as possible of the household’s ends.

Likewise for you as an individual. You marshal your means to fulfill as many as possible of your ends. So too for a business. Each business uses its capital and inputs to earn profits.

And to marshal means in a manner that fulfills as many as possible ends requires not only planning, but also conscious effort to execute the plan.

In sharp contrast to an individual, a household, and an organization such as a business firm, what is today called an “economy” has no purposes. The economy has no hierarchy of goals that it or its participants pursue. Each American, each American household, and each American firm (for-profit and not-for-profit, and governmental) has a hierarchy of goals that it pursues, and each does so by acting within the American — actually, within the global — economy. But these many attempts to fulfill individual goals are no part of a collective effort to fulfill higher goals.

The American economy has no goals. It is not an economy; it is not a goal-directed entity, such as a household. An economy, properly speaking, is a catallaxy. According to F.A. Hayek, a catallaxy is “not a single economy but a network of many interlaced economies.”

Libertarians recognize this reality. Progressives and conservatives deny it.

The Economy Isn’t a Family

Progressives think of the country as a large family. According to this mindset, each American is rather like one of more than 300 million siblings, all under the direction of Papa (the U.S. president) working with Mama (Congress), who are supervised by wise (if in practice sometimes senile) grandparents (the Supreme Court). Just as within a family each member bears an ethical responsibility to care for fellow members, so, too, within a country each citizen has a similar ethical responsibility to care for fellow citizens.

The family itself earns an income. And while it’s appropriate for some siblings to receive out of this income more resources than are received by other siblings, the distribution of income within the family is not driven by commercial, arm’s length negotiations or by luck. Instead, the distribution of the household’s income is consciously chosen by its elders, and the chosen distribution is meant to enable the family to achieve as many as possible of its goals.

Thinking of the country as a large family, progressives judge the actions of each citizen toward others as they would judge the actions of someone toward his or her siblings.

When Bernie Sanders thunders against income inequality, he seems to be motivated by the same animus that would motivate any of us to look with stern disapproval on a handful of siblings accumulating large stores of toys and candy and refusing to generously share these with other siblings. Refusal to share, after all, works against the family’s purpose of ensuring the maximum well-being of each member.

I suspect that when Sanders and other sincere progressives propose to redistribute income they think of themselves as proposing to do nothing more than to ensure that the American family works according to plan.

The Economy Isn’t a Firm

Conservatives are no less confused. They tend to think of America as a large corporation — America, Inc. — whose goal is to produce and sell as much as possible in order to earn profits as high as possible.

This mindset perhaps explains why conservatives are less agitated than are progressives by income inequality. If America, Inc., is to fulfill its goal of earning high profits, it must operate at peak efficiency. And so to motivate citizen-workers to produce as much as possible, high performers must be allowed to keep most of what they earn. There is no injustice in super-producer Gates having more material resources than ordinary producers Boudreaux and Tucker. Super-producer Gates contributes disproportionately much to America, Inc.’s, bottom line.

This conservative mindset also explains why conservatives are less supportive than are progressives of the welfare state. Just as General Motors would be acting contrary to its plan of maximizing profits if it paid some of its workers to live idly, so, too, does America, Inc., act contrary to its plan of maximizing profits by subsidizing the idleness of some of its citizens.

Conservatives recognize the justice of some welfare payments. Each corporation, after all, typically agrees — for perfectly good business reasons — to help its workers in their retirements and to compensate workers for injuries suffered while on the job. But a large and indiscriminate welfare state, in the conservative view, reduces the country’s operating efficiency.

My hypothesized mindsets of progressives and conservatives are admittedly simplistic. Not only do progressives differ amongst themselves in their conceptions of society, as do conservatives, progressives and conservatives often share with each other similar attitudes and priors.

Yet as a first approximation of an important difference separating both progressives and conservatives from libertarians, I submit that my hypothesized mindsets capture something real. Unlike progressives and conservatives, libertarians judge society and government policy by how well individuals are able to fulfill their goals; libertarians do not suppose that individuals who comprise the large collectives that we call “countries” do or should aim at fulfilling the non-existent higher goals of these large collectives.

Donald J. Boudreaux is a senior fellow with the American Institute for Economic Research and a professor of economics at George Mason University.

These Corporate Vigilantes Have No Place In Economics Or In Society

May 9, 2019/in Articles /by Hunter Hastings

A serious issue has gained prominence in modern society the last few years: The executives and/or founders of large companies increasingly consider it their civic and moral duty to use the influences and powers of their businesses to censor or suppress political and/or inconvenient ideas they do not support or find offensive. This mindset is reflected in the following statement from PayPal CEO Daniel Schulman: “Businesses need to be a force for good in those values and issues that they believe in.” Taken in isolation, this is a very good philosophy. However, one needs to also examine the implications of it in practice.

Recently, PayPal decided to stop processing financial transactions for customers it deemed to have hateful political views. Not long ago, MasterCard and Visa refused to process any donations to David Horowitz’s Freedom Center, a conservative nonprofit. The crime? Horowitz had personal and/or political views that were judged by the credit card companies to be hateful. YouTube has banned some Prager University (PragerU) videos (PragerU is not a higher learning institution, but a nonprofit that promulgates conservative views.) Selected content from conservatives, Christian and some liberal-leaning groups has also been removed from social media and the accounts of the targets were deleted or deactivated.

The motivation for these actions is the desire of the executives of these companies to be “good” by punishing the “bad.” These executives, and their supporters, declare that their actions are protected by the laws of the United States of America, which they claim permit them to run their private businesses any way they deem fit.

Two questions need to be asked. First, does a private business have a boundary? If so, where is it? These are critical questions that need to be answered. Without defining the boundary of the modern business, we are likely going to alter, in negative ways, the civic foundations of our society. I do agree that a business should be allowed to have maximum freedom to be run as its founder sees fit. However, I also believe that the boundary of a business has to be limited to its business charter. PayPal has a charter to process payments for society; it does not have a charter to make society “good.”

I argue that many of the well-intentioned actions taken by executives of large corporations fall under what one could call corporate vigilantism. In a notable academic analysis, Les Johnston identified six criteria that are common to most vigilantism. (1) there is planning and premeditation by those engaged in such actions; (2) the actors are private citizens acting voluntarily; (3) the actors view their actions as “autonomous citizenship”; (4) the actors use or threaten to use force and pressure against targets; (5) the actors go into action to protect an established or new order from actual, potential or imputed transgressions; (6) the actors aim to control crime or other social infractions.

It should be noted that vigilantism is not new. It is likely the most popular form of justice in countries in which there are no mature civil institutions. However, vigilantism is a danger wherever it is found. There are three reasons for this. First is that it violates a basic organizing principle of society — namely, that institutions are only allowed to perform duties for which they have a societal mandate. There is no known societal law or mandate that empowers a corporate executive to be the vanguard of moral actions, choices and speech in society.

Second, vigilantism violates the essential principle of separation of powers, which is so essential to the norms of justice. In most vigilante processes, the same institution or group of people constitutes the judge, jury and executioner. Hence, the vigilante system has, by design, inherent, embedded and systemic biases.

Third, the vigilante process is not equipped to recognize its own biases. When asked about how PayPal, in collaboration with the controversial Southern Poverty Law Center, determines when to decline services to customers, Schulman told the Wall Street Journal: “We don’t always agree. We have our debates with [SPLC]. We are very respectful with everyone coming in. We will do the examination carefully. We’ll talk when we don’t agree with a finding: We understand why you think that way, but it still goes into the realm of free speech for us.” Despite this claim of evenhandedness, however, the majority of blocked customers are right-leaning groups and individuals.

A common protest is raised when one questions corporate vigilantism. People often respond by asking, “But, it is their business, isn’t it?” Yes, it is. But, society still has a role to play if and when the pursuit of private business’s self-interest is in conflict with major interests of its customers or the public. That is why regulations were enacted when we realized that private businesses were polluting rivers and other water resources. That is why the new, and stricter, European General Data Protection Regulation was enacted. That is why there is a process whereby new drugs have to be vetted and approved by a neutral party, such as the Food and Drug Administration, before they can be sold to the public. What do these actions have in common? They all involve the establishment of mechanisms that limit the authority of large organizations to exercise their freedom at the expense of the freedoms of others.

There is no debate that an executive of a company could support a political candidate or give money to any cause she/he pleases to do. The executive can also hire and fire anyone that she/he pleases. But this is quite different from what we see in corporate vigilantism. We hear about an executive of a corporation threatening to withdraw its businesses from a state because of perceived political and/or moral transgressions by people there. Or we read about an executive threatening to abandon or exclude a state from its expansion plans if and when a political organ of the state votes for the “wrong” cause or the “wrong” policy. These are some of the most dangerous kinds of politicization that can occur in a society. There is little difference between such corporate vigilantism and what we call corruption. What would you say if a politician promised to give voters money — if they vote a certain way? What would you think of a company that threatened to punish voters if they dared to vote a certain way?

We have had no laws curbing corporate vigilantism in the United States. This is because most business founders knew and/or believed that one should not mix politics and business. Unfortunately, things have changed. For a large corporation today, there is little or no penalty for using one’s near-monopolistic position to shut down the freedoms of others.

The spirit of vigilantism that makes a restaurant owner eject a customer who holds different political views is the same mindset that prompts executives of some large corporations to punish opinions, choices and actions that they do not like. The only difference is in the type and scope of harm done. Vigilantism corrupts free democratic societies, sooner or later, if action is not taken to curb it.

Nick Dedeke teaches information management courses at Northeastern University. This article first appeared in Real Clear Politics.

To Solve The Socialists’ Favorite Problems, The World Is Going To Need More Capitalism.

May 8, 2019/in Articles /by Hunter Hastings

Every self-respecting capitalist, it seems, is rushing to the aid of capitalism. James Dimon, chief executive of JPMorgan Chase, and Ray Dalio, founder of Bridgewater Associates, the world’s biggest hedge fund, both made headlines recently with eye-catching observations on the troubled condition of the U.S. economy. Mr. Dalio’s mood is apocalyptic: “I believe that all good things taken to an extreme can be self-destructive and that everything must evolve or die,” he wrote recently. “This is true for capitalism.”

In California this week at the annual shindig orchestrated by another Master of the Universe, Michael Milken, the expansive jamboree that started out life as the “Predators’ Ball” in the heyday of leveraged buyouts has for years been the Milken Institute Global Conference. This year, the theme was “Driving Shared Prosperity.” Everyone from Ivanka Trump to Christine Lagarde of the International Monetary Fund had ideas on how to make the modern free-market system fairer.

This surge in capitalist compassion is driven, of course, by real unease at rising inequality and the uneven access to opportunity in the U.S. It is given new urgency by what appears to be rising political pressure for far-reaching reform or, in the more fevered radical mind, the overthrow of capitalism.

The ideological weather in the Democratic Party is being made by the likes of Elizabeth Warren, Bernie Sanders and Alexandria Ocasio-Cortez, who urge massive income and wealth redistribution and a vastly expanded role for government. In the past six months alone, half a dozen books on how to fix capitalism have landed on my desk—from the radical progressive approach favored by Joseph Stiglitz, the Nobel Prize-winning economist and veteran of Democratic administrations, to the more market-friendly reforms proposed by Raghuram Rajan, a leading economist and former central banker who favors a renewed focus on the status of community in the modern economy.

All of this ideological and intellectual ferment reminds me of a cliché that President Bill Clinton repeated endlessly: “There is nothing wrong with America that cannot be cured by what is right with America.” This truism might have a contemporary application. What if the answer to capitalism’s current crisis is not socialism or social democracy but more capitalism?

I mean this partly in the sense that much of what is wrong with our current condition might not be a surfeit of capitalism but a deficit. We have a big-business, corporatist system in which a handful of companies dominate most sectors—powerful vested interests that protect their own turf, often at the expense of consumers. A true free-market economy would be more pluralist.

But there’s another sense in which, perhaps, more of the market rather than more of the government might be able to address the big social and economic challenges that dog the nation—the poor quality of education, lack of access to health care, unaffordable housing.

There is growing interest among enterprising investors in finding market-based solutions. Social entrepreneurship uses the resource-allocation efficiency of the market to target pressing social needs.

Take an organization like Kairos. It was founded a decade ago by Ankur Jain, a young University of Pennsylvania graduate who made a tidy sum in social media and believes that tech can be used to meet needs way beyond dating websites and videogames. “Technology at its best should help improve quality and democratize access,” Mr. Jain says.

Kairos has incubated five companies already, in fields such as housing and child care. The organization also seeks to fill market gaps by bringing together leaders from the public and private sectors. Earlier this year, I attended a fascinating gathering it organized in Dubai with CEOs, cabinet members, NGO leaders and investors.

No one is suggesting that all market failures can be fixed by the private sector. Throughout history, most of the larger ones have been addressed by government intervention—welfare programs, regulation, major infrastructure projects.

But history is also full of examples of social needs being met by the spirit of capitalist invention. If investors and innovators are given incentives, there’s every chance that the next Uber could be a business that offers access to affordable housing for the indigent or low-cost health insurance.

After all, for all its flaws, capitalism has solved far more of these problems, for at least a century and half, than socialism has.

This article appeared at wsj.com on May 3, 2019.