What I Told Ron Paul Institute Attendees

What I Told Ron Paul Institute Attendees

Some of you may know the name Alex Berenson, the former New York Times journalist who comes from a left-liberal background. He has been absolutely fearless and tireless on Twitter over the past eighteen months, documenting the overreach and folly of covid policy—and the mixed reality behind official assurances on everything from social distancing to masks to vaccine efficacy. He became a one-man army against the prevailing covid narratives.

Mr. Berenson is famous for creating a viral (no pun intended) phrase which swept across Twitter last year: virus gonna virus.

Which means: whether one is in Sweden or Australia, whether in New York or Florida, whether you have mask mandates or lockdowns or close schools or require vaccine passports—or do none of these things—virus gonna virus. Covid hospitalizations and deaths will be concentrated among the obese and elderly. In almost any community, two-thirds or more of deaths are over age seventy, but even among the elderly more than 90 percent of those infected survive covid. And among all covid deaths, only about 7 percent are “covid only” without other serious contributing factors.

What we won’t ever know, unfortunately—because we don’t have a control group, at least in the West—is what would have happened in a society which simply did nothing in response to the virus. What if a country simply had encouraged citizens to build up their natural immunity through a healthy diet, exercise, vitamins, and natural sunlight? What if it had taken precautions for elderly and immune-compromised populations, while allowing younger and healthier people to live normally? Would such a country have reached a degree of natural immunity faster, with overall better outcomes for the physical and mental health of its citizens? And with far less economic damage?

All of this is the unseen. And no, it wasn’t “worth it” to shut down the world.

Back to Mr. Berenson. Last week Twitter decided it had enough, and permanently suspended his account. This is no small thing for independent journalists—and God knows we need them—who reach a lot of people via Twitter and rely on it to make a living.

Search for his Twitter profile and you’ll find something spooky. His name is still there, but with a quietly menacing “Account Suspended” warning. All other traces of his existence are erased: his header photo is gone, his profile photo is blank, and the descriptive bio is missing. Just blank. It’s eerie, and reminds me of that famous old photo of Stalin by the Moscow Canal. He’s standing next to Nikolai Yezhov (I had to look him up), who fell out of favor with Stalin and was executed—then erased from the photo by Soviet censors.

Alex Berenson has been similarly unpersoned, removed, erased. But even if he ends up a casualty of this war1Don’t let this happen! Read Mr. Berenson here.—and whether you agree with him or not—people like him have managed to challenge the official narrative in ways unimaginable even twenty years ago. The financial journalist John Tamny made an interesting point last week: complain about social media all you want, but Facebook and Twitter have been great sources of information during this covid mess. And after thinking about it I had to agree. Most of the alternative information about covid I’ve consumed via social media. But of course Mr. Berenson no longer has this luxury.

The Covid Economy and Tradeoffs

Speaking of narratives, we have especially lacked clear and sober thinking about the injuries to the US economy created by covid policies. We profoundly fail to understand the economics behind covid, because we so desperately want to kid ourselves that the economy will be “normal” soon.

Governments are good at two things, namely bossing us around and spending money. They do both in spades whenever a supposed crisis arises, and both Congress and the Fed went into hyperdrive beginning in March 2020. The Fed pumped more than $9 trillion to its primary dealers, estimates are that more than 20 percent of all US dollars ever issued were issued in 2020 alone. On the fiscal side, more than forty federal agencies have spent $3.2 trillion in covid stimulus spending. So that is $12 trillion of inflationary pressure introduced to our economy.

What the economy wants and needs during crises is of course deflation. When uncertainty rises, and it certainly did for millions of Americans worried about their jobs in 2020, people naturally and inevitably hold larger cash balances. They spend less. Meanwhile they were staying home, driving less, dining out less, traveling less, working less. All of this is naturally deflationary, so of course Congress and the Fed embarked on an effort to fight this tooth and nail with intentional inflation. So now we’re in a wrestling match between two opposing forces, one natural and one artificial.

Dr. Hans-Hermann Hoppe has a famous dictum: markets produce goods, which are the things we want and willingly buy or consume. Government produces bads, which is to say things we don’t want at all. Things like wars and inflation. They do this with our own money, reducing what we have to spend on actual goods and thus reducing production of those goods.

The past sixteen months we’ve had lots of government bads, to the point where we might call them “worsts,” which are even worse than bads. The covid and Afghanistan debacles come to mind.

It may be facile and self-serving to compare the federal state’s inability to manage Afghanistan with its inability to manage a virus, but the comparison is just too perfect to resist. So I won’t resist.

Among the bads government produces is misinformation. One analogy between covid and Afghanistan is the phenomenon known as the fog of war: the uncertainty in situational awareness experienced by participants in military operations.

Paraphrasing Carl von Clausewitz: war is the realm of uncertainty; the factors on which action in war is based are wrapped in a fog of uncertainty. Fog and friction cloud the commander’s judgment—even where the commander wholly shares our interests, which is hardly a given with covid. When we declared war on a virus, clarity went out the window. And so we’ve lived with sixteen months of fog, of covid misinformation. This happens in tandem with the media, which parrot official pronouncements from sources like the deeply compromised Fauci and stir up alarmism at every turn.

And we’re still living with it. Consider we still don’t have definitive answers to these simple questions:

Do masks really work?
Do kids really need masks? As an aside, our great friend Richard Rider reports that San Diego County—population 3.3 million—shut down its public schools for a year with one student death!
Is there asymptomatic spread?
Does the virus live on surfaces?
How long does immunity last after having covid?
How many vaccines will someone need to be “fully” vaccinated? How many boosters? Annual?
Aren’t delta and other variants simply the predictable evolution of any virus?
How do we define a “case” or infection if someone shows no symptoms and feels fine?
Can covid really be eradicated like polio? If so, why haven’t we eradicated flu by now?

And so on. We never get clear answers, but only fog.

But perhaps the most shocking thing about sixteen months is our childlike inability to consider tradeoffs! I’m not only talking about the tremendous economic consequence of shutting down businesses, and the horrific financial damage it has done and will do to millions of Americans. I’m not only talking about the depression, isolation from friends and loved ones, alcoholism, untreated illness, suicide, weight gain and obesity, stunted child development, and all the rest.

I’m talking about understanding the basic economic tradeoffs of covid policy: supply chain, food, energy, housing, unemployment. This is bread and butter economics.

I can’t stress this enough: millions of Americans have no conception of economics, and simply don’t believe tradeoffs exist. They think, are encouraged by the political class to think, that government can simply print money in the form of stimulus bills and pay people enhanced unemployment benefits to stay home. That the CDC [Centers for Disease Control and Prevention], of all cockamamie federal agencies, can simply impose a rent moratorium and effectively vitiate millions of local contracts—it will just work itself out somehow. That Congress can simply issue forgivable PPP [Paycheck Protection Program] loans to closed or hobbled businesses so they can magically make payroll. That the Federal Reserve can simply buy up assets from commercial banks, lend them limitless funds, and command lower interest rates to stimulate housing and consumerism.

Millions of Americans, through sheer ignorance of economics, literally think these actions are costless and wholly beneficial—without downside.

And now we wonder why the economy can’t just flip a switch and get back to normal. But that’s not how an incredibly complex global supply chain, with just-in-time delivery, works. And that’s why thousands of Ford F-150s are sitting unsold, and unsellable, in huge parking lots—there is a global semiconductor chips shortage. Many of them come from a single company in Taiwan. By the way, semiconductor chips are used in everything from iPhones to Xbox consoles to Surface laptops to refrigerators.

There was a remarkable op-ed at CNBC recently about the supply chain interruptions. It gets the cause of inflation wrong, blaming it on the pandemic rather than central banks, but it paints a vivid picture of the serious problems facing a radically overstressed global manufacturing sector. Delays in delivery are said to be the longest in decades. And inflation plus delays is bad news, because it’s so hard for buyers and sellers at all stages of production to know what to charge and what to pay for either capital goods or consumption goods. How many construction projects, for example were blindsided by the five-time rise in lumber prices last year? Ports are clogged awaiting trucks—not enough drivers—so containers sit for weeks rather than days. Empty containers have become scarce. Rail schedules are affected by the ports like dominos, and freight prices are spiking. Will West Coast longshoremen strike in 2022 when their contract is up? Will new emissions regulations which slow ships kill more capacity? Will key Chinese factories shut down again due to delta?

None of it is pretty and may last into 2023. So buy your Christmas presents now!

We are starting to see the unseen, but economists, whose job it is to show us the tradeoffs, have been largely AWOL over the past year and a half. Consider this recent post by a famous libertarian free market economist:

US GDP is now higher, in fact a fair bit higher, than when the pandemic began.
US labor force participation is about 1.5% lower than when the pandemic began.
Was there really slack to the tune of a few million people in Jan of 2020?
Has inflation really changed enough to make the GDP numbers misleading?
Has total factor productivity improved that much in that time, under those stresses? (i.e. more output from less input, labor & capital).

Or is this all a sign that the structure of the economy is more stratified than we think—that there are millions of people in more-or-less filler jobs who can be cast out and the economy just keeps on running along? Yes, there are all sorts of reports of labor shortages, and all manner of supply chain hiccups which seem to often be associated with off shoring, but general activity is still high. (Or is it? Are the numbers reporting “vapor GDP?”—or are the inflation adjustments really out of whack so real GDP is not what we think it is?)

This is clever masquerading as smart, and it’s the sort of thing which makes people dislike economists. It’s homo economicus nonsense. This kind of navel-gazing—wondering aloud, as though we could shut down the world for a year, send everybody home, suspend rent payments, and not suffer tradeoffs—makes me think economics as a profession is not doing the world any good. People desperately need productive activity for their basic health and happiness, even if that activity doesn’t much add to the national economy.

A friend who runs a large chain of retail stores across several states sent me this in response.

It’s amazing how [BLANKED]-up this person is. An economy is a way to get stuff. Is there much stuff, or less stuff, than when this all began? More cars or less? More computers and personal digital devices or less? More food or less? More oil or less? Greater business to business supply chain or less?

But because this [BLANK] thinks the economy is a symbolic architecture, not a real thing for getting real stuff, he’s absolutely flummoxed by a simple question. Go outside, moron. Step away from the keyboard and the spreadsheet.

I thought he was spot on. Economics is the study of choice in the face of scarcity, of how we get the goods and services we want in an environment of tradeoffs and uncertainty. Nothing could be more disastrous to that environment than vague, open-ended government lockdown measures. We don’t need to move numbers around until they please us as some kind of substitute gnostic knowledge. We shut down the world over a virus, restarting it will be difficult, and the economic damage will be enormous and long lasting. Economists should be showing us the unseen damage, not cheering the juiced-up data.

My point here is to suggest the economics of our present situation are worse than advertised, and that economics is about that holds us together. What we think of as America is mostly an economic arrangement, not a social or cultural one—and certainly not a political arrangement. America is hardly a country anymore, and I take no pleasure in saying that. What happens when the economics unravel?

The Great Unraveling

But there is a happy upside to all of this. A silver lining, perhaps.

Over eighteen months we’ve learned that all crises are local. For eighteen months it has mattered very much whether you live in Florida or New York, whether you live in Sweden or Australia. And the physical analog world reasserted itself with a vengeance: no matter where you are, no matter how rich you may be, you must exist in corporeal reality. You need housing, food, clean water, energy, and medical care in the most physical sense. You need last-mile delivery, no matter what is happening in the broader world. Your local situation suddenly mattered quite a bit in 2020. It was the year localism reasserted itself.

Whether your local reality was dysfunctional or did not matter quite a bit in the terrible covid year. And people are waking up to the simple reality of this dysfunction. We know the federal government can’t manage covid. It can’t manage Afghanistan. It can’t manage debt, or the dollar or spending, or entitlements. It can’t even run federal elections, for God’s sake much, less provide security, or justice, or social cohesion.

So how can it manage a country of 330 million people? How can it manage fifty states?

Whether we want to call it the Great Awakening or the Great Realignment, something profound is happening. Imagine if the twenty-first century reverses the dominant trend of the nineteenth and twentieth, namely the centralization of political power in national and even supranational governments? What if we are about to embark on an experiment in localism and regionalism, simply due to the sheer inability of modern national governments to manage day-to-day reality?

A kind of centrifugal force is at work. Here in the US, people are self-segregating—both ideologically and geographically—in what we should think of as a kind of soft secession. A recent survey by United Van Lines confirms what we already knew: people are fleeing California, New York, New Jersey, and Illinois for Texas, Idaho, Florida, and Tennessee. This is simple flight from the dysfunction of big cities and unworkable progressive policies, laid bare by the analog lessons of covid.

We should cheer this. If just 10 percent of Americans hold reasonable views on politics, economics, and culture they would constitute 33 million people—we could coalesce as a significant political force! And this nation within a nation would be larger and more economically powerful than many European countries.

Furthermore, we are witnessing a tremendous shift in political power away from cities toward exurbs and rural areas. There really is nothing like it in US history. America started in colonies and villages, before moving westward to farms and ranches. When factories began to replace farms as major employers, Americans moved to the old Rust Belt cities like Chicago and Pittsburgh and Detroit. When tech and finance began to overshadow manufacturing, Americans moved to Manhattan and Seattle and Silicon Valley for the best jobs. But that revolution in finance and tech means capital is more mobile than ever, and covid accelerated our ability to work from home. All of this could have huge beneficial effects for smaller cities and rural areas, which in turn could have profound effects for the congressional map and electoral college. If the angry school board meetings over masks are any indication, politics already has become more localized.

Covid policies ruined cities, at least for awhile, and the Great Unraveling will reduce the political and economic power of those cities.

So a once-in-a-generation opportunity is before us. The federal government is far and away the biggest, most powerful institution in America, but as previous speakers mentioned, faith in institutions is crumbling. And it should crumble. Washington, DC, has been the centerpiece around which we organize society for a hundred years now, and that’s a profoundly evil reality. So we should cheer when Americans lose faith in it due to Trump or covid or Afghanistan or public opinion polls which show a deeply divided and skeptical country. There is a growing sense that DC is over, it’s done, and it’s time to turn our backs on it. We are losing our state religion.

Contra our political elites, covid and the disastrous reaction by governments may end up reducing their power and standing in society.

This article is excerpted from a talk delievered by Jeff Deist at the September 4, 2021 Ron Paul Institute conference, and is republished with permission of the Ludwig von Mises Institute.

How a Libertarian Would Solve Land Conflict in the Middle East

How a Libertarian Would Solve Land Conflict in the Middle East

The recent spate of bombing violence in Israel’s West Bank, East Jerusalem, and Gaza demonstrates the enduring attachment both Israelis and Palestinians have to physical land in the country. Both sides make claims—legal, moral, and political—to land within Israel, from the southernmost tip of Gaza to the northernmost tip of the Golan Heights. This ongoing and often violent dispute is based on interrelated historical and religious events reaching back thousands of years, even before the origins of the biblical Holy Land. And while ancient disputes are inherently more difficult to resolve, twentieth-century events also weigh heavily on the current conflict. The Balfour Declaration in 1917, the official establishment of Israel by UN resolution in 1948, decisive domestic land wars in 1967 and 1973, and even recent peace accords all failed to settle the issue or at least bring an end to violence.

Fights over land are the norm in human affairs, and the impetus for most wars across time. This is unsurprising, because for most of human history land and wealth were virtually synonymous. Today the ultimate landowner, Queen Elizabeth of England, at least symbolically controls 6 billion acres of British territories far beyond the Crown Estate. In theory the wealthiest elites today, people like Jeff Bezos, derive most of their net worth from equity ownership in public or private companies. And unlike the blue-chip companies of fifty years ago, today’s big tech firms operate mostly in the digital sphere—owning lots of servers, intellectual property, and lines of code, but little in the way of factories, offices, or fields. Yet several tech titans, including Bezos and Bill Gates, are found among the old-money crowd in The Land Report‘s list of top American landowners. The richest people in the world tend to hedge their bets, and one way they do so is selling stock to buy land rather than the other way around. This should tell us something.

So long as land remains valuable, we should expect people to fight over it. And not only in Israel. Similar disputes over historical claims are simmering in the West, including claims by American Indian tribes against the US federal government for land restoration and black Americans seeking land as partial reparations for slavery. Yet we view these claims almost entirely in political terms, as matters to be settled by legislatures representing “the people” and using public appropriations. Why should this be so? Why does modern positivist “land law” focus primarily on zoning issues and land use rather than defining ownership? Black’s Law Dictionary appears to provide more guidance than the Supreme Court or international pseudotribunals. Why do we lack a method or road map for resolving land disputes in the modern context when land has been such a fixture in common law? One would think the basic rules of property titles would have been settled centuries ago.

What Land Titles Are “Just”?

So how do we address thorny land disputes in Gaza and elsewhere? Fortunately, both the late Murray N. Rothbard and his mentor, Ludwig von Mises, wrote at some length on the question of property titles, though from two different perspectives. In particular, we can look to Rothbard’s The Ethics of Liberty1In particular, see Rothbard, The Ethics of Liberty (New York: New York University Press, 1998), chap. 9, “Property and Criminality,” and chap. 10, “The Problem of Land Theft.”and Mises’s Socialism2In particular, see Mises, Socialism: An Economic and Sociological Analysis, trans. J. Kahane (New Haven, CT: Yale University Press, 1951), pt. I, chap. I, “Ownership.”for their fullest treatments of law and justice as they relate particularly to real property. Rothbard’s approach is normative, based strictly on natural law justice principles rather than economic efficiency. Mises, by contrast, is a strong critic of natural law. His “rule utilitarianism” views markets as a form of social cooperation, and seeks rules of conduct which encourage such cooperation for land disputes. But both men recognize the role that earlier aggression, whether force or fraud, played in creating property titles held today. Invasion, war, seizure, theft, trickery, and general violence are at least as prevalent in human history as heroic homesteading.

Mises, in Socialism, does not sugarcoat this reality:

All ownership derives from occupation and violence. When we consider the natural components of goods, apart from the labour components they contain, and when we follow the legal title back, we must necessarily arrive at a point where this title originated in the appropriation of goods accessible to all. Before that we may encounter a forcible expropriation from a predecessor whose ownership we can in its turn trace to earlier appropriation or robbery. That all rights derive from violence, all ownership from appropriation or robbery, we may freely admit to those who oppose ownership on considerations of natural law. But this offers not the slightest proof that the abolition of ownership is necessary, advisable or morally justified.

Rothbard, in The Ethics of Liberty, rejects the notion of accepting current settled land titles under color of state authority. Defending things as they are, he says, causes the utilitarian to smuggle in an implicit ethic:

This, in fact, is the way utilitarian free-market economists invariably treat the question of property rights. Note, however, that the utilitarian has managed to smuggle into his discussion an unexamined ethic: that all goods “now” (the time and place at which the discussion occurs) considered private property must be accepted and defended as such. In practice, this means that all private property titles designated by any existing government (which has everywhere seized the monopoly of defining titles to property) must be accepted as such. This is an ethic that is blind to all considerations of justice, and, pushed to its logical conclusion, must also defend every criminal in the property that he has managed to expropriate.

(Libertarians) must take their stand on a theory of just versus unjust property; they cannot remain utilitarians. They would then say to the king: “We are sorry, but we only recognize private property claims that are just that emanate from an individual’s fundamental natural right to own himself and the property which he has either transformed by his energy or which has been voluntarily given or bequeathed to him by such transformers. We do not, in short, recognize anyone’s right to any given piece of property purely on his or anyone else’s arbitrary say-so that it is his own. There can be no natural moral right derivable from a man’s arbitrary claim that any property is his. Therefore, we claim the right to expropriate the ‘private’ property of you and your relations, and to return that property to the individual owners against whom you aggressed by imposing your illegitimate claim.”

So how, then, does a Rothbardian apply natural law theory to determine just land titles? We start with self-ownership, the idea that humans have an absolute right to own and control their bodies. From that right, we derive the right to find and transform unowned resources into owned property. Finally, owning property means having right to alienate such property, by exchange or gift. So humans justly acquire property by mixing their labor with unowned resources, or by contract and gift. All other methods of ownership, variants of theft or fraud, do not create just property titles. This is Rothbard’s theory of the rights of property distilled:

The right of every individual to own his person and the property that he has found and transformed, and therefore “created,” and the property which he has acquired either as gifts from or in voluntary exchange with other such transformers or “producers.” It is true that existing property titles must be scrutinized, but the resolution of the problem is much simpler than the question assumes. For remember always the basic principle: that all resources, all goods, in a state of no-ownership belong properly to the first person who finds and transforms them into a useful good (the “homestead” principle)…. unused land and natural resources: the first to find and mix his labor with them, to possess and use them, “produces” them and becomes their legitimate property owner.

Mises alludes to the “is” and “ought” of later versus original ownership, but takes an analytic rather than normative view:

[T]he sociological and juristic concepts of ownership are different. This, of course, is natural, and one can only be surprised that the fact is still sometimes overlooked. From the sociological and economic point of view, ownership is the having of the goods which the economic aims of men require. This having may be called the natural or original ownership, as it is purely a physical relationship of man to the goods, independent of social relations between men or of a legal order. The significance of the legal concept of property lies just in this—that it differentiates between the physical has and the legal should have. The Law recognizes owners and possessors who lack this natural having, owners who do not have, but ought to have. In the eyes of the Law “he from whom has been stolen” remains owner, while the thief can never acquire ownership.

The point here is not to reconcile Rothbard and Mises on just property titles, but rather to demonstrate their understandings of how and why property derives legal title. Any argument for the undoing of current land ownership starts with an understanding of the specific history of titles in question.

Four Scenarios for Land Title Disputes

As an analytic framework for considering the validity or criminality of land titles, Rothbard lays out four possible scenarios. He does so with the proviso that merely proving a title is criminal does not answer the question of to whom it should transfer:

Suppose that a title to property is clearly identifiable as criminal, does this necessarily mean that the current possessor must give it up? No, not necessarily. For that depends on two considerations: (a) whether the victim (the property owner originally aggressed against) or his heirs are clearly identifiable and can now be found; or (b) whether or not the current possessor is himself the criminal who stole the property.

That said, each scenario suggests a remedy to Rothbard.

  • Scenario 1: Clear title. In this instance we know a particular title is entirely valid and free of criminal origins. This might readily apply to a brand-new subdivision in a remote area in which no humans have lived, farmed, built, or about which no humans have even known prior. In the modern context, however, even the rawest land must have been bought from someone (such as the state), and then recorded with someone (certainly the state). But clear and unchallenged title is the baseline for Rothbard’s evaluation, and obviously requires no action.
  • Scenario 2: Unknown title. In this situation we cannot assess or know whether a title has criminal origins, because we lack the ability to find out. Accordingly, Rothbard tells us, the “hypothetically ‘unowned’ property reverts instantaneously and justly to its current possessor.”
  • Scenario 3: Criminal title, absent victim. Here we know the title is criminal and defective, but we cannot identify or find the victim or the victim’s heirs. This creates two possible just outcomes: (i) if the current titleholder was not the criminal,3In legal parlance, this is a bona fide purchaser for value. In other words, the purchaser does not know and has no reasonable reason to know that the land in question has a suspected stolen title. The purchaser obtains the land innocently, and for its full value—as opposed to the shady character who knowingly buys stolen goods at suspiciously low prices. This risk is of course mitigated by the marketplace, which creates experts in title research who sell title insurance. title reverts to such holder as “first owner of a hypothetically unowned property” or (ii) if the current titleholder is the criminal aggressor, such holder is immediately deprived of title and it reverts to the first person who takes this land newly determined unowned and appropriates it for use under the homesteading principle outlined above.
  • Scenario 4: Criminal title, identifiable victim. Finally, when we know a title is criminally defective and we can clearly identify the victim (or heirs), the title immediately reverts to the victim without compensation to the criminal (or unjust titleholders). This last scenario is a bit more fraught, as victims have immediate right to full ownership and possession even if after the criminal appropriation an innocent buyer came along.

These four examples, at least in theory, give us the clearest possible approach to working out land disputes. They apply to any scenario, including the worst atrocities in human history, provided proof can be produced which both identifies the original theft and the perpetrators and victims involved.

Who Bears the Burden of Proof?

In The Ethics of Liberty Rothbard does not discuss the burden of proof that plaintiffs should bear in disputes over land. Burden of proof requirements arise from common law, and require a suing party to put forth evidence at a certain level to prevail in their claim. This is not merely a technicality, but an evidentiary standard which often determines the outcomes of cases. In civil suits today, a plaintiff seeking money damages generally must demonstrate liability by a preponderance of the evidence, which means the judge or jury believes that the evidence shows the defendant “more likely than not” bears responsibility. By contrast, a prosecutor seeking to jail a defendant must demonstrate guilt beyond a reasonable doubt. Since Rothbard advocates “collapsing tort into crime,” which is to say basing all actionable lawsuits on aggression against persons or property, is a much higher burden of proof required in land disputes?

Writing in the Cato Journal several years later on property rights and pollution, Rothbard appears to answer in the affirmative:

Who, then, should bear the burden of proof in any particular case? And what criterion or standard of proof should be satisfied?

The basic libertarian principle is that everyone should be allowed to do whatever he or she is doing unless committing an overt act of aggression against someone else. But what about situations where it is unclear whether or not a person is committing aggression? In those cases, the only procedure consonant with libertarian principles is to do nothing; to lean over backwards to ensure that the judicial agency is not coercing an innocent man. If we are unsure, it is far better to let an aggressive act slip through than to impose coercion and therefore to commit aggression ourselves. A fundamental tenet of the Hippocratic oath, “at least, do not harm,” should apply to legal or judicial agencies as well.

The presumption of every case, then, must be that every defendant is innocent until proven guilty, and the burden of proof must be squarely upon the plaintiff … for libertarians, the test of guilt must not be tied to the degree of punishment; regardless of punishment, guilt involves coercion of some sort levied against the convicted defendant. Defendants deserve as much protection in civil torts as in criminal cases.

This evidentiary burden decidedly colors the larger argument about justice and land titles. In this practical sense, Rothbard partially concedes Mises’s view on the utilitarian value of continuity and the general sentiment that “possession is nine-tenths of the law.” Rothbard is willing to overturn the apple cart, but only if and when a party seeking title to land makes a thoroughly persuasive case.

Is There a Statute of Limitations for Land Claims?

That persuasion may well depend on the age of such a claim: as years, decades, or even centuries go by, witnesses die and written records are hard to find. This is certainly the case in Israel, where current land titles are often traced to very old or even ancient provenance—with little in the way of official deeds. As evidence become harder to adduce with the passage of time, disputed title claims become harder and harder to prove. To be sure, Rothbard takes pains to deny any concept of a statute of limitation in libertarian legal theory. After all, statutes require legislatures, which he rejects altogether. And he is not the kind of thinker whose sense of normative justice shifts simply because an injury is long in the past. Yet Rothbard’s four scenarios, outlined above, create bright lines for determining just outcomes for proven claims. Neither Rothbard nor any other theorist can solve the issue of proof, which means no system of justice is perfect. And it’s important to repeat that Rothbard’s analysis is based on individual cases and specific claims, not generalized calls for redistributive justice for past actions. For Rothbard, there is no generalized political justice for slavery, genocide, military land grabs, or groups with historical grievances.

Should Lineage Matter?

Finally, we have the difficult question of whether and why genetic lineage should allow any person to make (or collect on) a claim on behalf of their ancestor. At several points, Rothbard discusses victims and their heirs, as contrasted with criminal aggressors and their ancestors. This clearly indicates his agreement with the idea that property rights adhere to successive generations, as does the taint of theft.

Certainly, an individual who dies with a successful legal claim to land (but who has not yet taken possession) can assign that claim to heirs (or anyone else, of course). In many US states the operation of law effectively achieves this if the individual died without a will or without making such an assignment. But in a scenario like Israel, lineal heirs to people with just Rothbardian claims to land may be dozens of generations and thousands of miles removed from the dispute in question. Especially in Rothbard’s fourth scenario above, why should a bona fide innocent purchaser (or the purchaser’s heirs) not have a better or equal claim to the land? What if the heirs have no familial, geographic, or cultural ties to the original victim whatsoever? Why should they, in effect, step into the shoes of a long-dead and long-forgotten ancestor, even when the ancestor is a complete stranger? Why does the hyperindividualist Murray Rothbard think family relations should matter so much in legal theory?

The short answer is because we don’t have a better way. Channeling Thomas Sowell, we must ask, “Compared to what?” Are hereditary rights to claims the best imperfect system we can devise? Do they give us a way to identify worthy claimants that no other system can? Yes and yes.


Henry George was correct: the amount of physical land on earth is inherently fixed and finite. Mark Twain told us to “buy land, they’re not making it anymore.” Of course, the amount of “usable” land (inhabitable, arable, reachable by humans) increases with technology, along with the amount of extractable resources and economic value. Someday the vast sea floors may be widely available to us. But land is indeed exhaustible, in a purely possessory sense. This simple reality inescapably benefits earlier generations, which came to possess land by dint of discovery, homesteading, legitimate purchase, inheritance, war, colonization, force, fraud, or just the sheer luck of being born at the right place and time. Young people may well resent this state of affairs. They may wonder if they’ll ever be able to afford even modest property like their grandparents could, much less hellishly expensive homes in New York City or Singapore or Vancouver (never mind the role of central banks in this). They were late to the party—through no fault of their own—and now find themselves landless in a crowded world of over 7 billion people.

But does this apparent cosmic injustice make the case for upending and redistributing existing land titles? No, because a generalized sense of fairness, even if such an ideal were remotely possible to determine, would require mass injustice to implement. Justice should always be specific, individual, temporal, and local to the greatest extent possible. This is why Rothbard requires a great degree of specificity in identifying both perpetrators and victims of land appropriation, while Mises argues against abolishing current ownership simply because of the injustice or indifference of past legal orders. Land, like any capital good, will tend to move toward those who can find its best and highest use. Thieves and squatters, however much unjustly enriched, are unlikely to maintain ownership forever under a better system of market liberalism (i.e., a more just and less barbaric system of land acquisition). In the view of both Rothbard and Mises, markets tend toward justice in allocating titles to land over time, however imperfectly and slowly. Rothbard gives us the rough foundation of justice, but only common law juries—temporalized and local—can fill in the gaps. Justice is often found in the details, and this sets natural limits for any overarching theory of justice. In this sense the here and now always has the upper hand over the past.

Yet life is unfair. No legal code based even on the best libertarian principles found in common law can fix this entirely.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

The Enduring Genius of Murray Rothbard

The Enduring Genius of Murray Rothbard

This week we celebrate the life of Murray N. Rothbard, born on the second of March 1926, a Tuesday, in the Bronx.

And what a Bronx it was, teeming with brilliant intellectuals, dedicated Communists, and rock-solid middle-class Americans like David and Rae Rothbard. The family would later become friendly with their apartment building neighbor in Manhattan, one Arthur F. Burns. Burns, an economist at Columbia, was destined for a political career at the Council of Economic Advisers under Eisenhower and as Federal Reserve chairman, appointed by Nixon. Tellingly, Burns was also the man who later nearly sabotaged Rothbard’s dissertation at Columbia. By the standards of academic economists, he certainly reached the height of his profession.

Yet we might ask how many people remember or read Burns today as opposed to Rothbard.

The answer is that virtually nobody remembers Arthur Burns. But Rothbard, like his mentor Ludwig von Mises, is far better known and far more widely read today than at any time during his life. There is both poetic justice and a degree of melancholy in this, as Murray suffered the slings and arrows of his detractors just as surely as he enjoyed the friendship and respect of his countless colleagues and readers. For Murray and his beloved wife, Joey, childless but enormously social creatures, the books and ideas themselves became the offspring and legacy. Both have grown in the intervening years.

For any serious thinker, the ultimate reward must be found in the longevity of one’s work. Is it still read and considered five or ten years hence? Twenty-five years? A century later? By this measure, Rothbard surely is far more successful than his antagonist Arthur Burns. Even posthumously, Rothbard is a lightning rod. Burns is a footnote. We know Rothbard will be read across the twenty-first century. We know decisively that Burns will not.

How prolific was Rothbard? Surely the sheer volume of words he wrote surpasses nearly any writer in the twentieth century. Henry Hazlitt once remarked at age seventy about having written every day of his life since age twenty; he estimated his lifetime output at roughly 10 million words. Rothbard, despite living only to sixty-nine, surely exceeded Hazlitt by a wide margin. Make no mistake, Murray was still writing at a brisk pace when he died.

A discussion of his oeuvre is too long for any article. His bibliography alone spans sixty-two pages, complete with thirty full-length books and one hundred book chapters. His published scholarly articles, some lost to time and microfiche, are conservatively estimated at one thousand. And his popular articles, including op-eds, movie reviews, political analysis, and sports commentary, are innumerable.

It is hard to imagine anyone today matching his staggering scholarly work across economics, history, philosophy, sociology, political theory, and law. A sliver of his writing would make a great career for a professor working in today’s hyperspecialized, “stay in your lane” world of academia.

Yet the volume and erudition of his work alone do not explain his enduring appeal. Rothbard tapped into something deeper, and whether we call it integrity or intransigence, he possessed it in spades. Rothbard’s remarkable career underscores a critical but often overlooked point: almost everything interesting and innovative and valuable in the world happens on the margins. We see this in technology and business, in arts and literature, in education and medicine, in politics and government, and in any part of life where new thinking threatens the status quo. We certainly see it in the world of ideas.

This is why nothing good comes from tired and compromised sources like the New York Times or The Atlantic, nothing worthwhile comes from DC think tanks or risk averse academics, and nothing interesting comes from court intellectuals or dissolute pundits on TV. This is why the most original and compelling writers today use Substack or Medium and the most dangerous thinkers are found on YouTube or small podcast platforms rather than cable outlets. Rothbard took on the established economic and political thinking of his day without hesitation, using the alternative venues and platforms available to him at the time.

Murray was always outside the status quo, on the margins. It made him what he was.

Serendipitously, and usually by necessity, Rothbard spent his career writing at the outer bounds of then current thought and scholarship. Working at the margin, combined with his blistering intelligence and capacity to retain knowledge, was his comparative advantage. As with Mises, an easier path would have changed everything.

Had Rothbard’s PhD not been delayed by Burns, he might never have spent nearly fifteen years at the Volker Fund. This time spent writing and researching, as opposed to working on the kind of academic papers he would have been expected to write to support tenure at a university, transformed both his understanding of Austrian economics and his writing style. It set him on a course of writing for both lay and academic audiences, which ultimately made him far more influential than any professor. And most importantly, it gave him time and support to begin his magnum opusMan, Economy, and State, which transformed the trajectory of his career and presaged an Austrian revival. His path gave him freedom and time, the two most valuable commodities for any intellectual hoping to make fearless and radical contributions.

Professors seeking tenure, by contrast, tend to be timid creatures looking to add their small bit to the existing literature. They also tend to have mortgages. Had Rothbard sought a traditional academic position, as his Ivy League credentials and publications certainly warranted, who knows whether the “full Rothbard” would have emerged? Similarly, had he become comfortably ensconced at the Cato Institute, the politics and compromises of DC think tank–dom would have created pressure to mute both his anarchism and his harsh denunciation of the US empire.

A comfortable Rothbard may never have produced Power and Market, where he made his full case for privatized defense. He may never have issued the blistering challenge to small government liberals found in Anatomy of the State. He might never have tackled the toughest issues, like self-defense and proportional justice, in The Ethics of LibertyInstead, he almost single-handedly built a new normative system of anarcho-capitalism from the loose foundations of political anarchism and laissez-faire.Only his unbridled independence allowed him to argue comprehensively against the predatory state as harmful to liberty by its very existence.

Will there be another Rothbard in our lifetimes, in this dumbed-down digital age of sound bites and dopamine hits and preening superficial intellectuals? We should hope so. Consider how Mises viewed the state of intellectual affairs in the mid-twentieth century, evidenced by flashes of pessimism in his memoirs. Coming from prewar old Vienna, America in the 1960s must have seemed a cultural wasteland. Yet that same decade, the Age of Aquarius, produced Rothbard’s aforementioned Man, Economy, and State and breathed new life into Misesian thought. Just as Mises revived Menger and Böhm-Bawerk, Rothbard revived the essence of the Austrian school and gave it a footing in North America. He found its pulse, and he rooted it once again in praxeology. Mises praised Rothbard’s book, but he never imagined the renaissance his name and work would enjoy over the decades following his death, in large part due to Rothbard’s efforts. So we cannot afford the luxury of pessimism today. New voices and thinkers will continue to emerge, and “another Rothbard” may well be toddling around the Bronx today in diapers. But even if a hundred young Rothbardians are needed to fill his shoes, this should not deter us.

Rothbard’s work continues to gain purchase today not only because of his genius and insights, but because he focused so singularly on the ideas themselves rather than on the accoutrements of intellectual life. It’s not only that he never sold out, but something more: it simply never occurred to him. For Murray, the work was the point.

Rothbard endures. He endures because he never flinched from asking hard questions or giving hard answers. It is hard to imagine any thinker today matching the depth and breadth of this writing, his sweeping scholarly reach, or the sheer blinding intelligence he brought to any intellectual venue. Instead of succumbing to the zeitgeist, he moved it. Ignore his critics and read Rothbard for yourself. You will find a happy warrior and a mind like a diamond.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

How Reddit Killed Stakeholder Theory

How Reddit Killed Stakeholder Theory

The GameStop saga shows some “equity” movements are more equal than others.

Stakeholder theory, the corporate version of social justice, attempts to install this hopelessly amorphous concept of “equity” in the business world. Equity, unlike equality, demands different treatment of individuals and different distribution of resources based on need, identity, and historical injustices. But now equity has evolved beyond a political buzzword, and finds growing support in calls for stakeholder capitalism. The animating impulse in big corporate boardrooms today requires cultivating an image of social responsibility. Under this theory business firms should entertain all kinds of noneconomic goals and outcomes. No longer may owners simply concern themselves with profit or loss, but instead must consider the broader societal implications of everything their business does. Whether corporate leaders concern themselves with social justice out of genuine desire or merely to avoid backlash is an open question, but the events of 2020 clearly changed the conversations in boardrooms.

Under the old conception, businesses have four primary elements, namely owners, managers, employees (or vendors), and customers. All four have skin in the game, which is to say their own money or income is involved. The notion of stakeholders inverts this paradigm and grants a degree of power over ostensibly private businesses to those who take no risks and provide no benefit. By undermining the suddenly old-fashioned idea of profit and loss as the guiding principle for business, stakeholder theory calls into question the very existence of millions of businesses big and small—in fact their grubby and narrow focus is simply to make money.

To suggest that the general public or society at large ought to be a de facto partner in any business, based on the interconnected nature of any economy, is to suggest an unlimited and wholesale attack on the concept of private ownership. It is patently antiproperty and implies collectivism by its very conceptual foundation. It insists everyone in society ought to have an interest in and some say over what ostensibly private firms do—and not only with respect to their profits, but even their business practices and mission. Stakeholder theory even creates a starring role for the earth itself, as the ultimate nonrenewable resource which is dubiously always in peril from business.

Societal ownership of business firms traditionally takes three prominent forms, specifically socialism, communism, and fascism. But in 2021 these terms fail to shock or alarm us as they once did. The constant use attenuated language makes us almost immune to powerful words that ought to be used judiciously. Socialism is increasingly popular, while fascism is the pejorative increasingly aimed at market capitalism. The newspeak of equity and stakeholders is yet another “third way” bridge blurring the distinction between private and state, between the economic means and the political means. And to be fair, equity and stakeholder movements per se do not represent outright socialism (or fascism) in either the Misesian or Rothbardian sense. We still have stock markets, we still have private owners, and we still have profits and losses. The equity revolution takes place within the form, as an evolution rather than a deviation.

Enter GameStop and its Reddit WallStreetBets bros, determined to prop up the fading retailer’s stock price in the face of intense short-selling pressure by powerful and rich hedge funds. This uprising, whether motivated by greed, gamer culture, or sheer spite against perceived Wall Street fat cats, is as much imbued with notions of fairness and societal benefit as any protest movement. Yet suddenly the champions of stakeholder theory, like the predictably despicable Washington Post, find themselves singing a new tune about vulture capitalists, deciding that hedge fund short sellers are the good guys in the story.

After all, stakeholder theory means investment funds and major corporations have the right—or even the duty—to make uneconomic decisions. Broader societal interests, not just bottom-line profits and shareholder value, must be considered. So funds and companies frequently invest in supposedly green but inevitably less efficient technology, make donations to left-wing social causes like Black Lives Matter, and give money to a variety of charities. These actions may in fact provide long-term economic benefits from a positive public image, but they do not directly increase share prices or dividends.

Redditors have the same right. Correctly or not, they see social benefit in causing financial losses for hedge funds with short positions looking to profit off GameStop’s stock decline and anticipated eventual bankruptcy (due to downloadable games obviating any need for retail outlets). If Koch Industries can be characterized as a nasty fossil fuels polluter whose profits fund captured antidemocratic right-wing think tanks, why can’t Redditors similarly portray hedge funds as evil tools for the 1 percent to get even richer on the back of a struggling retail chain? The notion of rich Wall Street investment bankers using their inordinate financial power to rip the marrow out of a dying industry’s carcass used to excite the Left. Now that same narrative somehow becomes an alt-right populist slander, one used by Reddit bros in their evil plot to manipulate the GameStop price.

In truth there are no victims in this tale. Perversely, the celebrated former Fed chair and current Treasury secretary Janet Yellen was paid more than $800,000 by Citadel LLC—another player in the GameStop story. Should her “equity” be redistributed? Just yesterday GameStop stock dropped nearly 60 percent and has lost $400 per share from its recent all-time high. And while it all seems like a manipulated and even immoral series of events, we should remember that nobody put a gun to anyone’s head. The WallStreetBets group collectively chose to put their own money at play, knowing they were pumping the share price and could not all get out at once or even at a profit. Melvin Capital and other hedge funds heavily invested in shorting GameStop chose to take a significant risk, and their due diligence certainly could have included understanding and monitoring Reddit investment boards. As economist Peter Earle recently said, if you get in the ring, you might get punched.

The purpose of capital markets is price discovery. They help investors and businesses allocate capital to its best and highest uses, however imperfectly and haphazardly. Short traders, long traders, so-called insider traders, futures traders, derivative contracts, speculators, gamblers, colluders, and even naked short sellers all serve this imperfect process. All of these individuals and mechanisms constantly recalibrate and react to changing conditions, bringing a public company’s performance (and share price) into greater clarity. And any firm not wishing to subject itself to the vagaries of fickle equity markets or public campaigns can simply remain private and fund itself through operations or private placements.

The process is imperfect because humans are imperfect. It can manifest in fits and starts, and demonstrate deep irrationality or even mania. But the alternative is nothing less than creeping socialism by another name, whether stakeholder capitalism or otherwise. When your atavistic and deficient theory backfires on you, look for a mirror rather than a congressional bailout. Everything is not everyone’s.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

When Will Americans Realize They Aren’t ‘One Nation’?

When Will Americans Realize They Aren’t ‘One Nation’?

It’s one thing for mass democracy to produce bad results, in the form of elected politicians or enacted policies. It’s another when the democratic process itself breaks down because nobody trusts the vote or the people who count it. But that’s precisely where we are.

As things stand at this writing, last night’s presidential election remains undecided and looking ugly. At least six states are still uncalled, and both the Trump and Biden camps have their legal teams claiming victory. We may be in for days, weeks, or even months of legal skirmishes, all of which can only add to our intense political (or more accurately cultural) breakdown.

Today, perhaps 140 million American voters are in purgatory, fearfully wondering what will happen to them if the other guy wins. This is nothing short of a national psychosis, absurd yet deadly real. And it gets worse every four years, despite the narrowing of any “policy” differences between the two parties over recent decades. If anything, presidential votes are overwhelmingly about tribal affiliations with our kind of person, not substantive ideology.

Yes, this is unhealthy. And yes, the psychosis manifests because the stakes are so high. It manifests because government is far too big and rapacious; lawmaking and jurisprudence too centralized in DC; the unitary executive presidency too powerful; and society too politicized. But these are unhelpful truisms. Plenty of Americans abjectly support more government, more centralized political power, an omnipotent president and Supreme Court, and the sharp politicization of every facet of life.

In Nation, State, and Economy Mises talks about a “liberal nationalism” and explains what a confident nation requires:

A nation that believes in itself and its future, a nation that means to stress the sure feeling that its members are bound to one another not merely by accident of birth but also by the common possession of a culture that is valuable above all to each of them.

What, then, is the common culture Americans possess?  What binds us together as a unifying principle? Is it language? Religion? Constitutionalism? Love of country? (What country?) Markets? It certainly is not obvious, and few of us feel optimistic about America’s future. Worse still, covid lockdowns have attenuated the ostensibly nonpolitical spheres of life—from family and work to sports, dining, movies, and travel. When we stare ourselves in the mirror all day, and read everyone’s innermost thoughts on social media, we find familiarity breeds contempt.

Regardless of how the election turns out, it’s obvious America is not much of a country anymore, much less a nation. The sooner we accept this, the sooner we can get to work asserting the principles of federalism, subsidiarity, nullification, and even secession. None of the current frictions will get better over time, but they can get much worse—and our most important task must be to avoid any movement toward outright civil war.

There are workable baby steps toward this. Law professor Frank Buckley writes about “secession lite” in his sober and reasoned book on the subject of a national breakup. Buckley sees a third-way approach between our current disfunction and an outright breakup into new political entities, primarily through aggressive federalism and state nullification. This echoes sentiments from Professor Angelo Codevilla, who similarly argues that the feds simply lack the manpower to enforce federal laws and edicts on recalcitrant states. Just as blue states declared sanctuary cities as havens from Trump’s immigration policies, red states could restrict all manner of federal dictates (abortion and gun control come to mind) while simply daring the feds to interfere. At the end of the day, Codevilla reminds us, there are only a few million of them and many millions of us. And progressives too share this sentiment; even if Biden prevails, they remain shaken by the degree of Trump support. In fact the 2016 election saw the New Republic advocate nothing short of a renunciation of the hated red states.

Things don’t have to be this way. Americans are lovely people—generous, open. But politics divides them in the worst and most unnecessary ways. It’s time to break up, and millions of us sense this instinctively. So what’s stopping us?

For one, secession remains bound up with the Civil War and Confederate slavery in the American psyche, distant in time as they are. Manifest Destiny and the westward expansion resulted in a nice, round number of fifty states, a nice, big American number. Throw in a few specious Supreme Court decisions like Texas v. White, and it’s no surprise many Americans still have concrete between their ears on the subject.

But Trump may have changed all that. And if you want political liberty to retain a foothold in the U.S., if you want Misesian liberalism to show a heartbeat in the West, you should cheer this.

Americans by and large are lovely people—open, generous, friendly, and quick to forgive. A hyperpoliticized environment, where everything is existential and rooted in race, sex, and sexuality, is deeply at odds with our character and well-being. We deserve to live peaceably as neighbors, even if that means breaking up and creating new political entities. Addressing the reality of our dysfunction is not divisive; the divide already exists. Our task is to apprehend this and end the charade of one nation.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

It Only Gets Worse From Here

It Only Gets Worse From Here

How bad is it?

That is the question on everyone’s mind as we come to grips with the economic carnage caused by global economic shutdowns, supply chain disruptions, and ongoing quarantines of million of people. Do we face another Great Depression, or simply a deep recession more like 2008? And equally important, are soft Americans prepared for either? Have we started to process all of this psychologically? Have we really come to terms with the enormity of the situation, with the unprecedented risk posed by business shutdowns? Are Americans so accustomed to a certain material standard of living that they do not understand how fragile it is?

Here is what we know.

Since February, 30 to 40 million Americans have been thrown out of work. Four or five million file new unemployment claims each week. The real unemployment rate is probably over 20 percent, while the labor force participation rate drops like a stone. In states like Hawaii unemployment may approach 35 percent. Deutsche Bank economists predict an absolutely staggering 40 percent reduction in U.S. GDP for the second quarter of 2020. Meanwhile, millions of American households and businesses simply stopped paying rent or mortgages on March 1, and bankruptcies spread across major American retailers like wildfire. Countless small local businesses, many left out of the running for the new SBA (Small Business Administration) loans recently created by Congress, simply will not reopen regardless of what happens over the next few months.

So although we have a sense of how deep the economic damage runs, we can only guess how long it may last.

Will the virus remain a threat, real or perceived, for months or years? And if so, how long will state governments maintain at least partial business lockdowns? Will the U.S. economy enjoy a vaunted V-shaped bounce-back recovery, as promised by Trump administration cheerleader Larry Kudlow? Will it look more like a U, with months or years of stagnation at the bottom? Or worse still, like an L with no rebound in sight?

Looking back at the 2008 crisis provides a sober argument against a quick recovery later this year.

Consider this analogy: Most roller coasters feature what is known as a “lift hill,” a chain-driven steep ascent at the beginning which takes nervous riders to the top of of a sharp drop-off. Going over this first hill not only creates the most thrilling moments, but also generates energy to propel the coaster cars farther along the path of the ride. How much farther and faster the ride goes depends on the height of the hill and the mass of the coaster train. Bigger and higher make for a more precipitous fall.

Absent some kind of additional mechanical intervention, the coaster never again reaches the height of the initial hill due to simple friction. Congress and the Fed are busy attempting to overcome this friction using government stimulus and central bank “liquidity.” But per our analogy, the coaster’s potential energy is highest during the pregnant pause at the peak of the lift hill; its kinetic energy is highest at the bottom of the first drop. No subsequent hill, twist, or turn quite matches the feeling of that first free fall.

Recall, from those terrible days of 2008, how a crash gathers speed. At first a few cars on the coaster crest the hill, well before the rest of the train plummets. In mid-September of that year, Lehman Brothers was the first car in the coaster to go over the hill into the abyss. It took a few weeks, until September 29, for investors to fully grasp what was happening and send the Dow plummeting in the largest single-day loss in history.

But the Dow did not reach its ultimate low until March 2009. Nine million lost jobs were not recovered until well into the next decade. And US housing prices didn’t bottom out until 2012.

Crashes are fast, like that first hill on a coaster. Recoveries are not, for the simple reason that production is more difficult than destruction.

Although the Great Recession of 2008 “lasted” eighteen months in official terms, its effects lasted far longer and are still felt today. Its scars remain particularly visible on two bookend generations, Millennials and Baby Boomers. In stark terms, many of the former failed to launch and many of the latter found comfortable retirement out of their grasp. Millions of Millennials sought more education and degrees (with resulting debt) to ride out the soft job market; millions of older workers simply gave up and limped along until they were eligible for Social Security. Now both face another crisis just a decade later.

How bad will the Great Crash of 2020 be? Even more unsettling is the question of whether it represents a self-inflicted wound, caused by state-mandated business shutdowns which increasingly appear wildly disproportionate to the actual threat posed by the COVID virus. Economist Daniel Lacalle and I will attempt to answer both during a live webinar later this week, particularly in the context of what governments and central banks have done in recent months.

The first step in addressing a crisis is understanding how severe it really is.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

A Response to Daniel McCarthy’s ‘Why Libertarians are Wrong’

A Response to Daniel McCarthy’s ‘Why Libertarians are Wrong’

Daniel McCarthy, editor of Modern Age and editor at large for The American Conservative, recently published an essay on the Spectator USA site titled “Why Libertarians are Wrong.” It merits a response because Mr. McCarthy is friendly and sympathetic toward libertarianism, and despite the infirmities of his article ought to be seen as a fellow traveler.

The title misleads us a bit from the beginning, because McCarthy is sound on the single most important libertarian political issue: war and peace. He objected to George W. Bush’s foray into Iraq, he attacks the permanent-war complex and its funding, and he consistently advocates a reasonably non-interventionist US foreign policy far closer to Ron Paul than John Bolton. He also has read Mises and Hayek, and unlike many intellectual conservatives (a dwindling group) McCarthy is not mired in Burke or Buckley or Reagan. He even blogged for the 2008 Paul presidential campaign and has spoken at the Mises Institute on foreign policy. So unlike a Bill Kristol or Sean Hannity, his conservative critique comes without ignorance or malice.

But it doesn’t come without errors, a few of them gross. First and foremost, McCarthy reads political libertarianism and support for free markets far too broadly. He wants answers to the great civilization and cultural questions of our day, from China’s influence to the growth of Islam in Europe to wealth inequality and the rise of a bureaucratic overclass. Consider this sweeping criticism:

If this America without a middle class is more politically stable than I think it will be, I suspect it will nonetheless face insuperable external challenges. China won’t have to fight a war with us; it will just outgrow us. When the differential of power and economic productivity is great enough, China will determine the strategic and economic environment in which we live. The cultural and religious environment will also be strongly influenced, if not determined, by the growth of Islam, particularly if Islam succeeds in dominating sub-Saharan Africa. Europe will have to deal with that to a greater extent than we will, of course.

I’m not sure that Hayek or Mises are the relevant texts for understanding any of this. Does a libertarian even care whether Islam displaces Christianity or China displaces America, as long as there are no tariffs on steel? You might not have freedom of religion or freedom of speech in the post-Western future, and those cheap consumer goods won’t be so cheap any more, but a libertarian will rest content knowing he fought to import as much foreign-subsidized steel as possible. This is why I consider libertarianism to be every bit as much a suicidal ideology as left-liberalism. In some ways it is even more so, as libertarians are more oblivious than left-liberals to the consequences for themselves of hewing to their ideology.

Here is a classic mischaracterization of political liberty, captured so well by Frédéric Bastiat in his famous quote: “every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.” Of course libertarianism per se can’t answer the civilizational questions of our day; of course economics per se can’t make us moral or ethical, much less strategic. Libertarianism is a narrow legal doctrine dealing with the justified use of force in society, a doctrine that makes no exceptions for state actors. Economics is a social science which studies how human actors choose among scarce means to achieve ends.

What liberty and markets can do is get out of the way of civil society and markets. A more libertarian society approaches problems privately, outside the narrow purview of the state, with private property and incentives creating skin in the game. Surely Mr. McCarthy, no grandiose neoconservative, understands the limits of state power to solve existential problems. Surely he understands the inherent problems with vote-seeking politicians, public finance, time preference, and democratic voting. Does he really think a more political society, in an increasingly secular and progressive America, is likely to yield conservative answers to the problems he worries about? Does he not understand that civic, social, religious, and cultural organizations ought to have more power than the state? Does he really want social, culture, and moral perspectives — which drive attitudes and actions on issues like immigration, inequality, race, and religion — driven by centralized politics in DC?

If so he definitely seeks to redefine “conservatism.” And perhaps he must, succumbing as he does to the progressive hubris that our time, place, and technology somehow create a situation unique in history. Mises and Hayek are insufficient for the vaunted 21st century! We need something new new new! McCarthy, like so many pundits today, imagines a third way between politics (force) and markets (cooperation). He acknowledges the libertarian argument that economies are too complex to be directed, that government interventions create unintended consequences and inefficiencies. But he does not acknowledge how decades of government intervention not only failed to prevent our current predicament, but helped create it. The problems he deems libertarianism unsuitable to fix were largely created by government in the first place.

China and the (supposed) loss of manufacturing jobs? Even a slightly more libertarian US economy, with a somewhat lighter regulatory, tax, and tariff monkey on its back, would walk away not only from China but the rest of the world too. Foreign policy and defense spending? Immediate troop withdrawals and radical reductions in military projection, along with real cuts to the military state. Immigration? Private sponsorship and vetting of immigrants, with legal and financial liability residing with sponsors for a term. Rent seeking and cronyism in industries like Big Pharma? Radically slash regulatory and approval processes, eliminate patents, and let generics flourish. Entitlements? Immediate means testing, coupled with a thirty-year phaseout of benefits and immunity from federal payroll taxes for younger workers. As for Islam, why not worry about what’s killing Christianity instead? Is the rise of modern western welfare states and the abject decline of Christianity just a strange coincidence to McCarthy, or does he understand progressive state religion? A robust Christianity, one that serves as a counterbalance to Islam, can’t exist when it’s in direct competition with the state that has far greater control over education, culture, and resources than any Christian group could ever dream of attaining.

Now we can argue about the political chances of these ideas, but McCarthy seems to think libertarian proposals (or more libertarian proposals than we’ve got) simply don’t exist. None of this requires conservative government, or much government at all. None of this requires a New Deal, or some Teddy Roosevelt muscular vision for America, or any kind of robust “policies” favoring the middle class. What it does requires radically shrinking the size and scope of the state in society. But as always this makes conservatives suspicious, because they cannot overcome their mythical homo economicus caricature of libertarianism.

Consider this hypothetical: imagine Mr. McCarthy could increase his income tenfold immediately by selling crack cocaine instead of editing conservative journals, without risk of criminal prosecution. Would he do so? Of course not. But why not? Is he a morally superior being, capable of rising above such an enticement—or is the notion of libertarianism as low-tax liberalism for grasping, deracinated economic actors actually silly? It’s even sillier applied across an entire economy of people.

Of course McCarthy also questions whether libertarianism can ever succeed as a practical matter, insisting that secession and decentralization are mostly pipe dreams. Fair enough; they may well be pipe dreams in the current environment. But it’s one thing to say libertarians likely won’t prevail, it’s another to insist they’re wrong. Incoherent modern conservativism offers no real alternative to the grim, incremental march of progressive political centralization over the past hundred years; only the exceedingly distant hope that someday they’ll control everything and impose their conservative views on blue state America.

But why not focus on reducing political power altogether, especially centralized political power? Social conservatives, even the most well-intentioned and thoughtful, have no answer to the aforementioned collapse of Christianity as an animating force in America. The country is not going to vote its way back into any kind of cultural condition favored by Mr. McCarthy or the Rod Drehers of the world (Mr. Dreher also writes for The American Conservative). Progressivism dominates every sphere of public life in America, and increasingly intrudes into private life as well. So however far-fetched McCarthy might find libertarianism as a political project, the prospects for a President Rand Paul exceed those of a Mike Huckabee or a red state evangelical governor. McCarthy might not see decentralization of state power as a viable strategy, but at this point it’s the only strategy his conservative readers have left, short of expatriation.

Only libertarians offer a critique of centralized power in the current environment, and only libertarians offer “live and let live” as a solution to the cultural rancor and political rancor all around us. Only libertarians propose real money, reality-based economics, and abolition rather than reform of doomed government programs. Only libertarians offer any just or humane approach to the question of what politically-vanquished people might do via decentralization and subsidiarity. Realistic conservatives should acknowledge the role the state has served in destroying the culture they claim to want to conserve.

Republished from mises.org.

War Abroad, War at Home

War Abroad, War at Home

Colonel Lawrence Wilkerson, speaking at a Ron Paul Institute conference this past weekend, predicted US troops would remain in Afghanistan another 50 years — just as they have in Germany and Korea. He also termed the ongoing US-backed campaign in Yemen the “most brutal war on earth,” a war western media overwhelming ignore.

Colonel Douglas Macgregor at the same conference called Washington DC “the place where good ideas go to die.” His years at the Pentagon, coupled with his experience leading US forces into Iraq during the first Gulf War, caused him to question the DC War Party in the most profound ways. Visiting the parents of an America soldier incinerated in a tank during that foray into Iraq, a foray with few US casualties otherwise, caused him to question not only his own missions but also the larger mission of US armed forces.

Both of these men now pose the same question: what is the goal? Why do seemingly endless military conflicts persist, despite lacking any constituency for their prosecution beyond the DC beltway? And why does US military strategy appear incoherent and counterproductive, when viewed through the lens of peace? Why can’t we do anything about this, no matter whom we elect and no matter how much war fatigue resides in the American public?

The answer is not found in a facile denunciation of the military industrial complex or war profiteers, though both are very serious problems. The answer lies in understanding how the DC War Party operates. Its goals are not ours. It is not democratic; the government is not “us.” It is not political; its architects are permanent fixtures who do not come and go with presidential administrations. It is not accountable; budgeting is nonexistent and gross failures only beget greater funding. It is above all not “economic” —  it operates in an artificial “market,” one created and perpetuated by wars and interventions ordinary people don’t want. War socialism, or what former Congressman Barney Frank brilliantly termed “military Keynesianism,” has taken on a life of its own.

Ludwig von Mises saw peace as the key to any liberal economic program, and argued strenuously against the fallacy of war prosperity. Even early in his career, before his horrific experiences as an officer in the Austro-Hungarian Army during World War I, he recognized the critical distinction between economy and war: the former characterized by exchange and cooperation, the latter marked by the worst form of state intervention:

Only one thing can conquer war — that liberal attitude which can see nothing in war but destruction and annihilation, and which can never wish to bring about a war, because it regards war as injurious even to the victors.

For Mises, war was worse than zero-sum. Even the prevailing party suffers, just as the shopkeeper suffers in Bastiat’s “Parable of the Broken Window.” The glazier’s profit does not benefit society, just as the War Party’s success in breaking other countries does not. But the loss is not only economic, it is also cultural and moral. War, the ultimate rejection of reason as a means of navigating human society, reduces our capacity for compassion and makes us complacent about atrocities. Worst of all, it emboldens and strengthens the domestic state — encouraging us to accept absurdities like TSA theater and heavily militarized SWAT teams operating in peaceful small towns.

While US troops remain mired throughout the Middle East, a subsurface political war heats up in the US. This cold civil war creates the kind of hyper-politicized society progressives once only dreamed of. Social media outlets encourage even the most ill-informed and ill-intentioned voices to spread hatred against those with differing views. Goodwill doesn’t translate, so fake bravado hidden behind anonymity or distance are the order of the day. Epithets like “racist,” fascist,” “Nazi” and worse become cheap currency in the new vocabulary of meaningless words. Dissenting voices lose jobs, reputations, and access to popular platforms. Mobs form to attack political opponents in restaurants and shops, shout down campus events, and threaten online disclosure of their perceived enemies’ personal information.

Meanwhile overt socialists like Elizabeth Warren, Bernie Sanders, Keith Ellison, and Alexandria Ocasio-Cortez lead the Democratic Party to demand government health schemes, guaranteed incomes, and “people’s” ownership of corporations. The statist house organ known as the Washington Post calls for the word “socialism” to be “reclaimed” and viewed in positive terms. Ostensible conservatives like William Kristol, Max Boot, and Lindsey Graham follow suit and utterly divorce themselves from any notion of judicious government. They call for the destruction of Iran, escalation of tensions with nuclear-armed Russia, and belligerence toward China and North Korea. Donald Trump, despite some initial antiwar instincts, hunkers down with twitter while surrounding himself with rabidly interventionist advisers like John Bolton.

What can this environment yield other than a rapidly coarsening society and the increasing potential for outright war between nuclear nations?

Just as civilization cannot be divorced from civility in our personal comportment, economics cannot be divorced from war. The most important and immediate action we can take is to expose the gross economic fallacies of our day. The hawkishness of neoconservatives and the “democratic socialism” of progressives both lead in the same direction, toward economic destruction and war. If you think American society is polarized and prone to lashing out abroad now, what happens with a shrinking economy and 40% unemployment?

Reprinted from mises.org.

Against War in Syria

By the Editors of the Ludwig von Mises Institute:

President Donald Trump has announced that he plans new missile strikes against the Syrian regime in response to an alleged chemical attack on Syrian civilians in a rebel-held suburb of Damascus.

The US has offered no evidence of the attack, since, as the Financial Times has admitted, confirmation of any such attack could take weeks. Moreover, confirming the attack took place at all is not the same thing as confirming that the Syrian regime was responsible for it.

The Trump administration, apparently, has little interest in such technicalities, and advocates for immediate military intervention point out that evidence could be lost in the meantime.

So the absence of evidence is evidence.

But, as Tucker Carlson noted in an important segment at Fox News, even if it can be proven that the Syrian regime is responsible for the attack, it’s unclear how a new attack on Syria will “make the US safer.”

The administration and its pro-war backers do not appear to even be making this case, as it is quite apparent that the Syrian regime is no danger to the United States, whatsoever. The regime’s tiny air force and virtually-non-existent navy pose no threat to a country with a navy ten times larger than any other navy, and which spends more on military projects than the next eight most militarized regimes combined. As President Dwight Eisenhower understood — as he cut military spending in the face of a resurgent Soviet Union — the US’s huge nuclear arsenal renders threats from regimes like Assad’s utterly moot.

But even if none of this were true, the burden is still on the US government to affirmatively demonstrate that Assad’s Syria is a threat to the American voters and taxpayers.

This will not happen, however, because that’s not how foreign policy is made in the US. There will be no meaningful debate in Congress, and nothing more than accusations and innuendo will be issued from the administration and other organs of the executive branch. “Trust us, we wouldn’t lie” will be the central claim of the American war promoters. Americans will, yet again, be told to sacrifice both treasure and freedoms to satisfy the latest schemes of the American military establishment.

Given that only a portion of the population will buy any claims that Americans are in danger, we’ll hear vague platitudes about humanitarian missions, and how the Syrian regime must be stopped for the sake of decency. We heard the same thing in both Iraq and Libya before regime change was effected there in the name of humanitarianism. In both cases, however, the region was only made less stable, and more prone to radical Islamism. The result has been anything but humanitarian or decent. Nor can advocates for war supply any answer to the question of what will replace Assad’s regime. The most likely candidates are radical Islamists. Moreover, so long as the US continues to ignore the humanitarian disaster in Yemen being perpetrated by American ally Saudi Arabia, any claims of “humanitarian” intent are dubious at best.

The real motivation behind the latest drive for war might be found by employing a strategy recently suggested by Lew Rockwell, who notes:

When you hear the words “national security” or “national interest” used by people in Washington, I think it’s important to substitute “imperial” for “national.” So is it in the national interest of the United States to bomb Syria? No. Is it in the imperial interest of the American Empire to do so? Yes. 

In other words, the US state and many of its allies stand to benefit significantly from war with Syria. As Randolf Bourne pointed out a century ago, “war is the health of the state,” and yet another war will help the American regime justify larger budgets, larger deficits, more taxes, and more state power in general.

For this reason, there has always been a close connection between the ideology of laissez-faire liberalism, and the ideology of peace. In the 19th century, it was free-market liberals like Richard Cobden and his friend Frédéric Bastiat who regarded economic intervention, slavery, and war as all part of one authoritarian package. This mantle was later picked up by the great liberal economist Ludwig von Mises, and then by his student Murray Rothbard.

Even in the cases where defensive war might have been justified, the costs of war, the liberals understood, have been far more grave than our rulers would have us believe. War is always a disaster for life, for liberty, and for the quality of life for those who survive. The only exception, it seems, are those organs of the state that benefit so handsomely from armed conflict.

But, on the matter of war, the position of the liberals — those we now know as “libertarians” — have long been firmly on the side of peace whenever possible:

But wars are not made by common folk, scratching for livings in the heat of the day; they are made by demagogues infesting palaces. It is not necessary for these demagogues to complete the sale of a war before they send the goods home, as a storekeeper must complete the sale of, say, a suit of clothes. They send the goods home first, then convince the customer that he wants them. … But the main reason why it is easy to sell war to peaceful people is that the demagogues who act as salesmen quickly acquire a monopoly of both public information and public instruction. … The dead are still dead, the fellows who lost legs still lack them, war widows go on suffering the orneriness of their second husbands, and taxpayers continue to pay, pay, pay. In the schools children are taught that the war was fought for freedom, the home and God. — H.L. Mencken

Modern war is merciless, it does not spare pregnant women or infants; it is indiscriminate killing and destroying. It does not respect the rights of neutrals. Millions are killed, enslaved, or expelled from the dwelling places in which their ancestors lived for centuries. Nobody can foretell what will happen in the next chapter of this endless struggle. This has little to do with the atomic bomb. The root of the evil is not the construction of new, more dreadful weapons. It is the spirit of conquest. It is probable that scientists will discover some methods of defense against the atomic bomb. But this will not alter things, it will merely prolong for a short time the process of the complete destruction of civilization. — Ludwig von Mises

Only one thing can conquer war — the liberal attitude of mind which can see nothing in war but destruction and annihilation, and which can never wish to bring about a war, because it regards war as injurious even to the victors. Where Liberalism prevails, there will never be war. But where there are other opinions concerning the profitability and injuriousness of war, no rules or regulations, however cunningly devised, can make war impossible. — Ludwig von Mises

Modern war is not a war of royal armies. It is a war of the peoples, a total war. It is a war of states which do not leave to their subjects any private sphere; they consider the whole population a part of the armed forces. Whoever does not fight must work for the support and equipment of the army. Army and people are one and the same. The citizens passionately participate in the war. For it is their state, their God, who fights. — Ludwig von Mises

​The middle and industrious classes of England can have no interest apart from the preservation of peace. The honours, the fame, the emoluments of war belong not to them; the battle-plain is the harvest-field of the aristocracy, watered by the blood of the people. — Richard Cobden

Public opinion must undergo a change; our ministers must no longer be held responsible for the everyday political quarrels all over Europe; nor, when an opposition journalist wishes to assail a foreign secretary, must he be suffered to taunt him with the neglect of the honor of Great Britain, if he should prudently abstain from involving her in the dissensions that afflict distant communities. — Richard Cobden

England, by calmly directing her undivided energies to the purifying of her own internal institutions, to the emancipation of her commerce … would, by thus serving as it were for the beacon of other nations, aid more effectually the cause of political progression all over the continent than she could possibly do by plunging herself into the strife of European wars. — Richard Cobden

The libertarian’s basic attitude toward war must then be: it is legitimate to use violence against criminals in defense of one’s rights of person and property; it is completely impermissible to violate the rights of other innocent people. War, then, is only proper when the exercise of violence is rigorously limited to the individual criminals. We may judge for ourselves how many wars or conflicts in history have met this criterion. … If classical international law limited and checked warfare, and kept it from spreading, modern international law, in an attempt to stamp out “aggression” and to abolish war, only insures, as the great historian Charles Beard put it, a futile policy of “perpetual war for perpetual peace.” — Murray Rothbard

The second Wilsonian excuse for perpetual war … is even more utopian: the idea that it is the moral obligation of America and of all other nations to impose “democracy” and “human rights” throughout the globe. In short, in a world where “democracy” is generally meaningless, and “human rights” of any genuine sort virtually nonexistent, that we are obligated to take up the sword and wage a perpetual war to force utopia on the entire world by guns, tanks, and bombs.  — Murray Rothbard

Reprinted from the Mises Institute.

Peace Is Popular

Capitalism is essentially a scheme for peaceful nations. What the incompatibility of war and capitalism really means is that war and high civilization are incompatible.
— Ludwig von Mises

Peace is popular.

That was Ron Paul’s message to our audience in Texas earlier this spring, and it has been his consistent message since first running for Congress in the 1970s. So why do seemingly endless wars remain such a stubborn feature of the American presidency, with the shameful complicity of Congress?

Americans who supported Trump did so overwhelmingly because he promised a populist “America First” approach to both domestic and foreign policy. Every poll shows that the domestic economy, culture wars, and immigration were the animating issues of the election — not our ongoing military misadventures in the Middle East. Nobody voted for an escalation of US involvement in Syria, nobody voted to ramp up the never-ending war in Afghanistan by dispatching the Mother of All Bombs, and nobody voted to resurrect an absurd decades-old conflict with North Korea.

Yet President Trump has done all of these things, largely abandoning the noninterventionist promises of Candidate Trump. Perversely, ordering a missile attack on a Syrian air base was the first and only act that earned him praise from his enemies at organs like the New York Times and Washington Post. “He’s finally acting presidential” they gushed.

To understand Trump’s departures from his campaign rhetoric is to understand the very nature of politics and the bureaucratic state. Nobody goes to Washington to “run” the government. Washington runs them.

Trump, ostensibly the biggest outsider to win the presidency in modern American history, cannot overcome the entrenched foreign policy establishment any more than he can overcome gravity. Ninety-five percent of employees at the State Department, Pentagon, CIA, NSA, and the rest of the alphabet soup agencies do not come and go with elections. They, along with the vast apparatus of defense contractors, are not going anywhere.

Permanent war and interventionism requires permanent funding. And like all tax-funded enterprises, war is inherently anti-capitalist. It diverts resources, swells state bureaucracies, and hides the horrific human and economic costs in a cloak of patriotism and platitudes about America’s role in the world. When we hear Vice President Pence talk about “rebuilding the arsenal of democracy,” he really means it.

Ludwig von Mises saw German war socialism up close as a lieutenant in the Austro-Hungarian army during the Great War. Under Wehrwirtschaftslehre, the German doctrine of war economics, the normal calculations of capitalist businessmen go out the window. Costs, quality, demand, and profit become wholly secondary to the overriding goal of preparing the nation for war. Thus war drives the impulse toward autarky (something we’ve seen in Trump) and economic dictatorship: the will and whims of ordinary citizens must yield to war production.

Thus in his darkest moments during the war, Mises resolved to write the definitive refutation of state controlled economies. The result was his 1922 classic Socialism: An Economic and Sociological Analysis, which remains perhaps the most important critique of collectivism ever written. It’s a book everyone should read and share, to understand the fundamental link between war and collectivism.

Dr. Paul’s message of peace and nonintervention is so critical today. It’s a message that is decidedly popular (outside of DC), nonpartisan, and tailor-made for a new century. It resonates with young and old alike, with rich and poor, and across racial lines. It’s popular with the alt-Right and the progressive Left, budget hawks and Greens, Burkean conservatives and tie-dyed peaceniks. We just need to get the message to Mr. Trump.

“From the Publisher” column from the current issue of The Austrian.

Republished from the Mises Institute

What Nassim Taleb Can Teach Us

Nassim Nicholas Taleb does not suffer fools gladly. Author of several books including The Black Swan and Antifragile, Taleb is known for his incendiary personality almost as much as his brilliant work in probability theory. Readers of his very active Medium page will experience a formidable mind with no patience for trendy groupthink, a mind that takes special pleasure in lambasting elites with no “skin in the game.”

“Skin in the game” is a central (and welcome) tenet of Taleb’s worldview: we increasingly are ruled by an intellectual, political, economic, and cultural elite that does not bear the consequences of the decisions it makes on our (unwitting) behalf. In this sense Taleb is thoroughly populist, and in fact he correctly identified trends behind the Crash of ’08, Brexit, and Trump’s election. He understands that globalism is not liberalism, that identity and culture matter, and most of all that elites don’t understand how randomness and uncertainty threaten the inevitability of a global order.

Thus Taleb argues the intelligentsia are not only haughty when they plan our future, they are also clueless: fragility abounds, and threatens to crash the Party of Davos. Hubris results from unearned wealth and prominence, coupled with a blindness to the Black Swans lying in wait.

Born in Lebanon to a prominent family, educated at the University of Paris and Wharton, Taleb was poised to become part of the cognitive aristocracy he mocks. But he was never one of them. His hard-nosed persona, enhanced by a dedication to rigorous deadlift workouts, is quickly evident in his notorious interviews and very public Twitter brawls. His willingness to delve into history and religion sets him apart from the neoliberals who hope to wish them both away. Taleb writes for the intelligent everyman, and this blue-collar approach also extends to his description of himself as a “private intellectual, not a public one.”

Austro-libertarians will find much to admire in his brilliant takedowns of the “pseudo-experts” he identifies in academia, journalism, politics, and science. But Taleb is no Austrian. While he holds a decidedly jaundiced view of most economists—calling for the Nobel in economics to be cancelled— he does not denounce economics as a field of study per se. Nor does he claim heterodox or reactionary inclinations:

“I am as orthodox neoclassical economist as they make them, not a fringe heterodox or something. I just do not like unreliable models that use some math like regression and miss a layer of stochasticity, and get wrong results, and I hate sloppy mechanistic reliance on bad statistical methods. I do not like models that fragilize. I do not like models that work on someone’s computer but not in reality. This is standard economics.”

While he is not averse to using mathematics and statistics in economics, Austrians share his perspective that both are tools for economists. Statistical models are mostly bunk that provide no value to economic forecasters or investors, despite the highly paid Ivy League quants who produce them. In fact, models often have harmful effect of creating a false sense of relative certainty where none exists. It’s refreshing to see Taleb make this claim so effectively from outside the Austrian paradigm of praxeology. But if his view of economics is mainline, his tone is Rothbard meets Hayek:

“I’m in favour of religion as a tamer of arrogance. For a Greek Orthodox, the idea of God as creator outside the human is not God in God’s terms. My God isn’t the God of George Bush.

We know from chaos theory that even if you had a perfect model of the world, you’d need infinite precision in order to predict future events. With sociopolitical or economic phenomena, we don’t have anything like that.”

Taleb does see a role for government, and supports consumer protection laws against predatory lending as one example. But he also purportedly supported Ron Paul in the 2012 presidential election, and has indeed mentioned Hayek as an influence regarding the dispersal of knowledge in society. He’s also applied special venom to several worthy targets in professional economics, including Paul Krugman, Joseph Stiglitz, and Paul Samuelson. Taleb labels as “Stiglitz Syndrome” the process whereby public intellectuals suffer no financial or career consequences for being spectacularly wrong in their predictions.

This is especially galling to a man who correctly called (and in fact became wealthy as a result of) economic crises in 1987 and 2008. In both instances, Taleb had “skin in the game” as a market trader. His own money and reputation were on the line, unlike the court economists in the New York Times.

For an excellent (albeit indirect) analysis of how Austrians and libertarians can advance their cause from a minority position, Taleb’s recent article The Most Intolerant Wins: The Dictatorship of the Small Minority is a must-read. He reminds us that a small minority with courage—the most important form of skin in the game— can prevail over the slumbering masses. And he also reminds us that courageous individual actors, not 51% mass movements, drive real changes in every society:

“The entire growth of society, whether economic or moral, comes from a small number of people. So we close this chapter with a remark about the role of skin in the game in the condition of society. Society doesn’t evolve by consensus, voting, majority, committees, verbose meeting, academic conferences, and polling; only a few people suffice to disproportionately move the needle. All one needs is an asymmetric rule somewhere. And asymmetry is present in about everything.”

Economics is lost, mired in a quicksand of predictive models that fail to predict and macro-analysis that fails to analyze. Democratic politics is lost, ruined by bad actors with perverse incentives to burn capital rather than accumulate it. And academia is lost, still stuck in a centuries-old model run by hopelessly sheltered PhDs. Taleb gets all of this, and does an admirable job of explaining it. Austro-libertarians would be wise to see him as a valuable ally and voice in the ongoing fight against states, central banks, and planners of all stripes.

Republished from the Mises Institute.

How Taxes Distort Business

Today is Tax Day in America. When April 15th happens to fall on a weekend, the IRS generously permits us to extend the filing ritual until the following Monday. But since Monday was a holiday in the District of Columbia known (without irony) as Emancipation Day, we all enjoyed an extra bonus day to comply. And for the most part, comply we do: the voluntary compliance rate, defined by the IRS as taxes timely paid as a percentage of taxes owed in aggregate, is nearly 82%. Compare this with Italy, for example, where tax evasion is a national pastime. For a nation born out of tax resistance, we Americans tend to grumble but not revolt.

We also tend to view taxes only in terms of personal pain: the financial costs of paying, the compliance costs of dealing with the paperwork, and the psychic costs of worrying about it all. It is precisely this pain, experienced only by individuals, that upends the left-wing rationale for imposing taxes on business entities, estates, and all manner of transactions. Only people pay taxes. When someone talks about raising taxes on “greedy corporations,” they’re really calling for higher consumer prices for those corporations’ goods and services.

But the larger impact of taxation is found in the countless and profound ways it changes human activity. Charles Adams, the great tax historian, devoted his career to examining the enormous sociological and cultural impacts resulting from how states raise revenue. Adams called taxes a “prime mover of history,” from ancient Egypt through the Middle Ages, from Enlightenment Europe to Colonial America and all the way up to our present world of offshore tax havens. Taxes, Adams maintained, are far from the price we pay for civilization. Instead they are mean, petty, and arbitrary, causing existential struggles for the poorest people in societies across history. Taxes not only fund wars and enrich unworthy rulers, but also create crippling distortions in every economy the world has ever known.

The impact of taxes on ordinary people in modern America, including the lengths to which some will go to avoid them, is well-represented in our national psyche. We’ve all heard anecdotal horror stories, usually involving someone’s finances being destroyed by a sudden IRS seizure. Americans also view the IRS as wanton and political in its enforcement actions, which makes sense. Even experts can’t agree how much a hypothetical family owes in any given year.

The distortive impact of taxes on US and multinational businesses is also extraordinary, albeit not as much discussed. While monetary policy causes malinvestment through artificially low interest rates, high tax rates and burdensome complexity similarly cause firms to radically alter their business decisions. And just as interest rates affect the length of production, tax rates (and rules) dramatically affect decisions about the capital structure of companies.

Having spent many years working on the tax aspects of M&A deals, I can attest that far too many business decisions are driven almost wholly by their tax ramifications. Consider just the following:

  • Bizarre and byzantine legal entity structures. Take a look at the spaghetti-like organizational chart of many corporations and you may be shocked by the number of legal entities that exist as subsidiaries below a parent corporation. Given the non-tax compliance work such a structure requires (e.g., corporate filings, board meetings, and minutes in multiple jurisdictions), the only purpose for such a structure in most cases is tax reduction.

Apple, Google, and Microsoft, for example, have employed infamous structures like the “Double Irish” and the “Dutch Sandwich” to conduct European operations. These structures advance two common goals for tech companies: (i) all European revenue rolls up into a European parent company in a low-tax jurisdiction like Ireland; and (ii) European intellectual property rights are owned by an entity in a tax haven like the Caymans or the Bahamas, which licenses the use of said property to a second European company. The second company ends up with little taxable income after deducting all of its licensing fees. In some cases revenues are funneled through Ireland to the even-friendlier Dutch, who then remit remaining profits to the zero-tax tropical haven.

  • Capital structures that overwhelmingly favor debt over equity. If you want to know how “leveraged buy-out” entered our lexicon, look no further than the disparate tax treatment afforded to corporate interest payments vs. dividend payments. As a general rule, firms can deduct interest payments made to third-party creditors and bond-holders (there are limitations on the deductibility of high-yield and related party debt, but even these limitations are rife with workarounds). The contractual obligation to pay interest creates a deductible expense which must be paid regardless of whether the corporation is profitable. By contrast, dividends are paid out of earnings and profits rather than accrued as an expense. They don’t decrease corporate net income like an expense, and payment is triggered only in certain situations.

While this makes sense conceptually, it creates an enormous incentive to load firms with debt. Many private equity deals prior to the Crash of ’08 were financed with 7 parts debt to equity or even more. In many instances the debt was sliced into dozens of tranches across multiple co-lenders, which reduces business risk but maintains the tax benefit. By relentlessly applying revenue to debt service, and thus taking a big interest deduction, private equity firms in the boom years were often able to sell companies 3 to 5 years later for many times their purchase price. They also kept their own risk exposure low: if the company tanked, their loss was limited to their equity investment.

  • Keeping cash overseas. US corporations with multinational operations have little incentive to repatriate foreign earnings, where Uncle Sam will reward them with a 35% hit for their efforts. In an era of cash-rich companies like Apple, it makes far more sense to keep those earnings offshore indefinitely, maybe permanently. A tax deferred is a tax avoided, or at least the next best thing. A very complex anti-deferral regime known as Subpart F was passed by Congress in the 1960s, but many of its rules can be avoided through the kinds of complex structures discussed earlier. And the Trump administration proposal for a tax holiday for dividends from foreign subsidiaries (last tried in 2004) has been met with howls by the Left and relative indifference by the House Ways and Means committee. At present US multinationals have every incentive to keep their allegedly $2.6 trillion in foreign earnings invested overseas indefinitely. 
  • Trafficking in tax losses, sort of. When reports that Trump’s companies had paid no income taxes surfaced, commentators hinted at complex schemes of tax evasion. In fact, Trump’s tax planning simply featured a plain vanilla net operating loss, one of the most common features of US corporate tax law. No “loophole” was involved, but rather a simple calculation whereby his companies incurred tax losses: allowable deductions and credits exceeded taxable income for a given year or years. These losses are permitted to be carried forward and applied against income for (up to) the next 20 years. Carry forward of operating losses has been part of tax law since the 1920s, and absolutely does permit large companies to balance the benefits of leveling out their tax burden over a series of profitable and unprofitable years.

What has changed is the ability of companies to flatten out traffic in tax losses through the acquisition of other companies with existing tax losses. The infamous Section 382 rules, passed in the 1950s, do indeed present limitations on acquisitions that seem to have no business purpose other than inheriting the tax losses of another company. But as usual, Congress created a full-employment act for lawyers and accountants by making things so hellishly complex that some practitioners spend an entire career performing Section 382 “studies.” But to the extent possible, US companies still attempt to use tax losses in one entity or year to balance out taxable income in other entities or years.

  • Creative transfer pricing. Transfer pricing relates to the rules for pricing goods or services between related companies under common ownership. Imagine Apple owning a subsidiary that makes glass for iPhones, along with another subsidiary that assembles them. The three-way transactions for parts and assembly services are subject to both GAAP and tax transfer pricing rules. In theory, such companies should deal with each other on an arm’s length basis. But as with all things tax-related, complexity yields real financial benefits. In short, multinational companies do everything they can within their complex structures to allocate deductible expenses to high-tax jurisdictions and taxable income to low-tax jurisdiction. How they do so, and whether it’s allowed for audit or tax purposes, has become an enormous industry unto itself that profoundly changes business behavior.

There are countless other examples of how the tax code directly influences firms to make tax-driven decisions. Ultimately, CEOs and CFOs of large multinational companies view taxes as a cost of doing business like any other. They will spend one million dollars on legal and accounting fees for tax planning if it saves two million, and who can blame them? In fact, one can argue they have a duty to shareholders to explore every last loophole. The question is opportunity cost: how much time, manpower, and money are spent finding ways to minimize taxes that could be spent on a company’s core business? And in turn, what are the social and cultural consequences of it all? It’s a question Charles Adams tried to answer, even as we try to ignore it.

Republished from the Mises Institute.

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