Economics

Central Banks around the World Embrace Unprecedented ‘Quantitative Easing’

Central Banks around the World Embrace Unprecedented ‘Quantitative Easing’

It feels like it’s been months, but it’s only been a few weeks since the world’s central banks started forcing down their key interest rates to historical lows around the world. In those places where rates weren’t reduced, the central banks have adopted vast quantitative easing plans. In some places, central banks have both reduced rates and adopted new QE.

Some central banks acted earlier than others. Both the European Central Bank (ECB) and the US’s Federal Reserve knew that this already weak economy was further weakening back in late summer 2019. The Fed reduced the key rate from 2.5 to 1.75 percent from June to October. The ECB reduced its negative rate of -0.4 percent even further to –0.5 percent in September.

Rates began to collapse in March, however. The Fed met twice in March, reducing rates first to 1.25 percent, and then down to 0.25 percent shortly after that. Also in March, the Bank of Canada and the Bank of Australia reduced their key rates to 0.25 percent. The Bank of England reduced its key target rate to 0.1 percent.

The Bank of Japan announced its key rate would remain unchanged at –0.1 percent.

target

New Quantitative Easing

While Japan is holding its target rate steady, there will also be plenty of new QE. The Wall Street Journal reports:

The BOJ maintained its target for short-term interest rates at minus 0.1% and its target for the 10-year Japanese government bond yield at around zero….The BOJ has been purchasing exchange-traded stock funds at an annual pace of ¥6 trillion, or about $56 billion, and it said Monday it would double that target to ¥12 trillion for now. It also introduced a new program to help banks lend to companies hit by the virus and expanded purchases of commercial paper.

Meanwhile, the Bank of England isn’t even bothering to use the euphemism “quantitative easing.” The B of E is now straight up handing over new money to the Treasury to fill its massive budget shortfall:

The UK has become the first country to embrace the monetary financing of government to fund the immediate cost of fighting coronavirus, with the Bank of England agreeing to a Treasury demand to directly finance the state’s spending needs on a temporary basis. The move allows the government to bypass the bond market until the Covid-19 pandemic subsides, financing unexpected costs such as the job retention scheme where bills will fall due at the end of April. Although BoE governor Andrew Bailey opposed monetary financing earlier this week, Treasury officials felt it was best to have the insurance of the central bank willing to finance its operations in the short term.

In Europe, the ECB on March 18 announced a new €50 billion “emergency purchase programme.”

With the ECB, we might to some extent describe this as “more of the same,” since Europe appears to have have been the least inclined of the West’s big central banks to scale back its QE programs even at the height of this past decade’s (tepid) boom. Back in 2012, then ECB president Mario Draghi famously declared that the ECB would do “whatever it takes” to save the eurozone. The ECB hasn’t ever given much reason to doubt that it will at least attempt this. But this latest round is not quite more of the same, since this new round of purchases will not be constrained as the QE of the past was. Bloomberg reports:

Government bonds rallied across the euro area after the ECB released a legal document that said the issue limits, which constrained sovereign bond-buying to a third of each of its member state’s debt, “should not apply” to its new program.

Eurozone member states are now free to pile on even more debt than before. In Europe, the political stakes are very high, since Italy never really recovered from the last recession and has had a banking system teetering on the brink for years. Italy has been propped up by the ECB in a variety of ways, and with its economy now in virtual free fall, Europeans in other parts of the the eurozone (especially Germans) will have to take a big hit to their savings to keep it solvent. The political fallout may be significant.

Canada (a nation with a population and economy about the size of California’s (and with a budget of about $350 billion)), began its own new round of QE two weeks ago. In late March, the Bank of Canada announced that the “Bank will begin acquiring Government of Canada securities in the secondary market. Purchases will begin with a minimum of $5 billion per week, across the yield curve.”

As the National Post notes,

It’s a moderate start to what some analysts are predicting will be hundreds of billions of dollars in purchases of Canadian government bonds in coming months as part of the central bank’s efforts to ease strains in the financial system and keep money cheap for borrowers. The Bank of Canada hasn’t set a limit on purchases.

In Australia (where the population and economy is about the size of Texas), the Reserve Bank of Australia has announced:

“Really nothing is off the table,” RBA Governor Philip Lowe said in Sydney after giving a speech on the newly announced measures.

“We are in extraordinary times and we’re prepared to do whatever is necessary to make sure funding costs in Australia are low and the supply of credit is there for Australian businesses and households.”

The Australian approach appears to be less centered on the central bank. The Australian state has expressed plans for a wide variety of plans for fiscal stimulus and, “in a separate statement, the government said it would buy A$15 billion of residential mortgage-backed securities and other asset backed securities over the next 12 months.”

Of course, if the Australian government must turn to deficit financing for these purchases, the central bank will end up supplying the needed cash.

A World without Savings

We’re quickly finding out what a world without savings looks like. All those claims we heard from central bankers for years about how a “savings glut” was forcing down interest rates are less convincing than ever. It is increasingly clear that central banks are among the only institutions out there with an appetite for buying assets. This, of course, is because central banks can create money from nothing, while much the world is on the edge of insolvency. Those institutions that appeared to be profitable were really only making ends meet because of past bailouts and continuing low-intensity QE programs. They were “zombies.”

After decades of ultralow rates coming out of governments and central banks obsessed with maximizing consumer spending, we find ourselves with debt loads that far outstrip savings. Without central banks, there would be massive global deflation. This would hurt many financial institutions, of course, but it would also lead to a decline in stock prices, real estate, and prices for other assets that have been propped up—to the benefit of bankers, hedge fund managers, and billionaires—for decades. This would mean greater affordability for many and a badly needed restructuring of the global economy.

The only way out is to allow freedom to interest rates and to allow the financial sector to take the hit. If interest rates were allowed to reflect market demand, they would quickly increase and real savings would quickly increase as people with the means to save would have finally an incentive to put their money somewhere other than the stock market and other industries that survive primarily due to the assumption that governments and central banks will always bail them out. Resources would then begin to flow again toward assets involved directly in production of goods and services. Real production would increase, easing the supply shock.

[RELATED: “What If the Fed Did Nothing?,” by Noah Bonn]

As it is, central banks will instead focus on helping the financial sector. But the financial sector has little incentive to make loans to households and institutions in the real economy.  So long as the economy is in a high-risk zone—whole central banks are simultaneously propping up demand for stocks, bonds, and a handful of other assets—it makes more sense for the financial sector to sit on the same safe assets that it has been accumulating for years. Why lend to a small business when the Fed will make sure your mortgage-backed securities are a safer alternative? So long as global trade can pave the way for more affordable goods and services, a limited escape hatch is possible. But given the current supply problems, that escape hatch may be unreachable for a long while. The pain in the meantime will be extensive for many. But don’t worry—many billionaires’ portfolios will be fine. Central banks will make sure of it.

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Lock Out Below! Lockdown Economy Plunging

Lock Out Below! Lockdown Economy Plunging

Mike Shedlock crystallized the Lockdown Nation catastrophe at hand by focusing on the unemployment claims numbers for Michigan Wednesday morning. And it doesn’t get any more transparent than a staggering 25% of the state’s work force already having filed unemployment insurance claims under the existing Federal/State UI program—only to have its computers crash and burn when the normally uninsured gig workers and self-employed tried to file this week for the new Federal $600 per week Covid benefit:

More than 1 million people — over a quarter of Michigan’s workforce — have filed for unemployment during the COVID-19 pandemic, the state’s top labor official said Monday.

Last week, Michigan reported more than 828,800 unemployment claims filed in the state from March 8 to April 4. Michigan’s pre-coronavirus record for new unemployment claims occurred during the Great Recession in January 2009, when there were 77,000 claims in a week.

In an embarrassing twist Monday morning, Michigan’s unemployment website crashed — again — but this time just as the head of the state labor department was expected to outline how the state would apply benefits for self-employed workers.

Just hours earlier, the unemployment website announced “self-employed workers, gig workers, 1099-independent contractors and low-wage workers can now apply for federal benefits online,” but, when attempting to file, an error message popped up: “This site can’t be reached.”

Likewise, the stunning collapse of the Empire State survey this AM left nothing to the imagination. The negative 78 reading for April was orders of magnitude worse than readings during the Great Recession and the post-dotcom crash.

https://www.zerohedge.com/s3/files/inline-images/empire%20fed%204.15.jpg?itok=x2GXzBgC

Likewise, the cliff dive embedded in this morning’s report on March retail sales was way off the charts—with the 8.7% m/m drop posting at more than double the worst reading during the Great Recession.

Moreover, March was only a warm-up: The April numbers will be 2X-3X worse.

 

In fact, when you look at even the March numbers at the product level, the plunge is even more dramatic. Food and beverage and general merchandise sales were actually up smartly owing to the fact the grocery delivery services, Amazon warehouses and home-cooked meals are out of necessity booming.

But when you look at discretionary and Lockdown items sold in the public facility based retail categories the sales crash in March was already in the negative 20-30% range, and, again, the results for April will be far worse.

Even then, March readings like these have never before been recorded on a month/month basis:

  • Electronics and appliances:-15.1%;
  • Gasoline stations: -17.2%;
  • Sporting goods and hobby stores: -23.3%;
  • Motor vehicles and parts: -25.6%;
  • Food services and drinking places: -26.5%;
  • Furniture and home furnishings stores: -26.8%;
  • Clothing and accessory stores: 50.5%

Not only are these double digit plunges severe in absolute terms, but relative to history they are literally coming from another economic planet. For instance, the Lockdown of bars and restaurants resulted in a -26.5% m/m change, which compares to the worst ever previously reported figure of -1.5% during the dark economic bottom in February 2009.

We will address the disaster that will ensue from the halting, baby-step “re-opening” of the economy being demanded by the infectious disease lobby and the Dem governors and mayors below. But here’s the point: All the upstream supply chains which deliver food and liquor, consumable supplies and equipment to  the restaurant and bar business have never previously suffered a measurable recessionary downturn as shown below. This time, however, they will suffer massive loss of sales owning to the near total shutdown of their customers.

In the case of the 50% plunge in sales at clothing and accessory stores, the cliff-diving numbers are even more fantastic. The chart below is not a rate of change measure. It represents actual sales dollars and means that in a single month, 25 years of sales growth was wiped-out.

Accordingly, the $11.1 billion of sales posted by these retail units for March was the lowest sales level since May 1995—–and these are nominal sales that give no account for the 40% increase in the general price level that has occurred in the interim.

The same story pertains with regards to furniture and home furnishings stores.

During the last 27 years, monthly sales have never dropped more than 5%, but in March sales collapsed by nearly 28%. Within two months, sales from these venues will easily by off by 50% or more for January 2020 levels.

 

Likewise, auto sales were down by 27.2% in March, and based on current industry information, are likely to be off by 50 to 60% during April.

This magnitude of instant collapse literally has no precedent since the collapse of sales in what was still the infant auto industry during the 1930s.  The low point in the Great Recession, for example,  was a 10.6% drop in October 2008 while the 15% drop in September of 2009 was a government instigated calendar aberration which occurred when Washington’s cash-for-clunkers boondoggle came to and end.

 

Needless to say, the collapse of retail sales is rapidly passing through to the production end of the economy—-with the March industrial production numbers published this AM providing merely a hint of the disaster to come later this spring.

Manufacturing output was already down by 6.3% in March, which is more than double the trough decline of 3.5% in December 2008 and the 2.5% drop in at the bottom of the 1982 recession.  Again, however, by April and May the plunging bars on the right margin of the chart will be down by 20-30%, at minimum.

Obviously, one reason 25% of the Michigan work force has already applied for unemployment is the auto assembly lines are tanking like they did in the winter of 2008-2009. Then, of course, both Chrysler and GM were already in bankruptcy and the Fed still had a massive trove of dry powder.

 

So the question recurs. How long can the Lockdown madness continue when it is self-evident that the US economy is going into cardiac arrest?

And They’re Gone! Lockdown Nation Wiped Out 10 Years Of Jobs Recovery In Four Weeks

And they’re gone!

We are referring to the 22 million jobs the BLS says were created since the Great Recession. But with today’s report of 5.2 million new unemployment claims, the four week total now stands at, well, 22 million jobs lost.

https://www.zerohedge.com/s3/files/inline-images/2020-04-16_5-30-49.jpg?itok=IuKYdKyD

So let’s just cut to the chase. There are two death watches underway in America, and the above chart tells you all you need to know.

The  morbid, sensationalized CNN/Cuomo Brothers/MSM/infectious disease lobby’s Covid Death Watch has spawned a hysteria among officialdom and much of the broad public that is literally killing economic function and rationality.

For example, the odds of the chart below happening from a normal business cycle downturn or even a so-called exogenous shock like the 1973 oil embargo or the 9/11 national security shock or the worst hurricanes or earthquakes of the last 53 years is virtually nil. The exploding red line on the right margin is government-made and hysteria born.

After all, each the above referenced economic blows, including 7 recessions, did actually happen during the period encompassed by unemployment claims chart below. But relative to the eruption of the last four weeks, they caused nearly invisible squiggles, rounding errors in the last half century of economic history.

Indeed, the 22 million claims over the last four weeks are 10X the size of the worst 4-week period during the Great Recession, and the latter was thought to herald the risk of the 1930s all over again, according to the Bernank himself.

Needless to say, this savage, government-inflicted blow to normal economic life would be one thing if the nation were actually confronted by a deathly Black Plague style pandemic or even an invasion by little green men from Mars.

But no matter how many times the out-of-control politicians, government-funded disease “experts” and the mendacious mavens of the 24/7 cable TV Death March deny it, the Covid-19 is just a highly contagious and somewhat virulent flu that mortally threatens only a very small share of the population — namely, the elderly who already have multiple life threatening diseases and conditions or what are called co-morbidities.

Today’s economy crushing Lockdowns, therefore, are a combination of blunderbuss and a one-size-fits all mantra gone haywire. And it’s happening because the so-called infectious disease experts around the CDC, WHO and Dr. Fauci’s Institute for Allergy and Infectious Diseases gave government officials the utterly wrong answer: To wit, they explained how to 100% stone-cold stop the spread of a virus that in today’s world can’t be stopped and needn’t be.

If politicians had any functioning gray matter between their ears they would have asked this question, instead: When the Covid-19 virus makes its inexorable trip through the population pool, who is most at risk of serious illness or even death, and what are the most efficacious and quickest methods to protect those people who will bear the brunt?

Yes, Covid-19 is a new strain, but its a corona virus variant that epidemiologists and other medical experts know a lot about, having studied SARS, MERS and H1N1 and their variants for the better part of two decades now. Accordingly, had they been asked to do their proper job — recommend how to protect the vulnerable and likely most serious victims — rather than how to extinguish the inextinguishable, they would have based it on the following crystal clear realities about the disease.

To wit, here are the risk-of-death ratios for the Covid epicenter population of New York state. These would not have been a mystery to the experts who have studied these kinds of flu-based viruses, yet among the 12,192 reported corona deaths through April 16, the mortality rates were:

  • 0-29 years: 60 deaths and 0.8 per 100,000;
  • 30-49 years: 653 deaths and 13 per 100,000;
  • 50-69 years: 3585 deaths and 73 per 100,000;
  • 70-79 years: 3253 deaths and 258 per 100,000;
  • 80 years & over: 4641 deaths and 1,214 per 100,000.

For crying out loud. You do not need to be a PhD epidemiologist or credentialed health policy expert to understand that when the risk of death for octogenarians is 1500X higher than for the under 30 population, then you do not have a one-size-fits all general public health emergency.

What you actually have is a radically skewed adverse response among the elderly to a common virus circulating among the entire population. And it bears fatally almost exclusively upon those who are already suffering from serious and even life threatening illnesses, and who are also overwhelmingly known to the health care system and doctors who are treating them.

Yet for want of doubt, let us repeat that among the 4,641 WITH Coronavirus deaths among those 80 and older reported by New York state, there were more than 9,000 (2 per deceased) cases of the top 10 co-morbidities including:

  • Hypertension: 2,809 (61%);
  • Diabetes: 1,418 (31%);
  • Hperlipidemia: 955 (21%);
  • Dementia: 936 (20%);
  • Coronary artery disease: 679 (15%)
  • Five others: 2,243 (48%)

Nor is this some kind of aberration unique to the New York cases. A nationwide analysis of hospitalized Covid-19 patients for the month of March shows pretty much the same condition of extensive co-morbidities.

Hospitals Try Glucose Monitors to Reduce Contact With Covid-19 ...

As for the under 50 population, even when you average in the slightly higher mortality rate for New York’s 30-49 years population, the total mortality rate for the under 50 population is still just 5.5 per 100,000.

Is that a rounding error and reducible to the absolutely unavoidable risks of human life?

Yes, it is. In fact, it’s just one-seventh of the normal rate for auto fatalities, other accidents and suicides (34 per 100,000) among this demographic, and only 6% of the normal mortality rate (91 per 100,000) due to all causes for this 67% share of the state’s population.

So what Lockdown Cuomo is really doing is putting the 13.05 million under 50 years population under house arrest not for their own good, but, apparently, in order to protect the 382,000 octogenarian population that is bearing the brunt of the serious illness and death or, more broadly, the total 1.64 million population 70 years and older.

Stated differently, this group accounts for 8% of the New York population but has suffered 65% of the deaths WITH Coronavirus reported to date.

Yet it is not evident at all that quarantining the healthy under 50 years population has done anything at all to protect the vulnerable elderly; at this stage the game, the morbidly ill elderly shouldn’t have been, and wouldn’t have been, going to bars, restaurants, hair salons, pet stores and retail emporiums, anyway.

The truth is, America’s across-the-board Lockdown is on its face irrational — especially when there is a far more deft, targeted alternative. To wit, New York data suggests that nearly 75% of the 12,192 deaths reported in the state to date are Medicare beneficiaries.

That’s right. Their names, addresses, social security numbers, Medicare treatment records, attending physicians etc are known to the government — meaning that they could have been systematically traced, contacted, isolated, assisted and treated by the medical care system and health agencies from the get-go.

Indeed, when it comes to practicality and rational trade-offs, the entire Medicare eligible population could have been targeted for assistance, protection and treatment for a tiny fraction of the $3-5 trillion that the fools on Capitol Hill are fixing to pump into the economy to off-set the massive losses of income and cash flow owing to the Lockdowns.

In the case of New York state, for instance, we have the very epicenter of the world’s Corona epicenter in the form of its roughly 3.6 million Medicare beneficiaries. This 1% share of the US population accounts for upwards of 36% of all WITH corona deaths in the US to date.

Would that the virologists, epidemiologists and other government health agencies have pointed Governor Cuomo in the direction of tracing, isolating and aiding Medicare’s medically vulnerable beneficiaries in lieu of savaging the state’s economy, and, ironically, his own state budget.

Needless to say, the old “but for” argument just doesn’t wash. That is, the specious claim that “but for” the Lockdowns the toll of illnesses and deaths would have been far worse.

We’d suggest that Japan proves just the opposite—even though its population is far older than that of New York.

As it happens, Japan has had no sweeping Lockdowns and even Prime Minister Abe’s so-called emergency decrees have been toothless gestures, possibly designed to provide cover for the $1,000 per head helicopter money he wants to pass out to the nation’s entire population in order to revive his sagging political fortunes.

But whatever Mr. Abe’s motivation, the facts could not be more dispositive. Japan’s restaurants, bars, shops, trains and other public venues are still largely open. But to date it has reported just 8,626 infected cases and 178 deaths.

We have often characterized Japan as a dying old age home heading for bankruptcy owing to its insane monetary and fiscal policies. But at the moment it still has a population of 126.5 million, which means that its reported cases amount to just 6.5 per 100,000, and its Covid-19 mortality rate as of April 15 was just 0.14 per 100,000.

That’s right. Sitting cheek-by-jowl with China, it has suffered one-seventh of a death per 100,000 population during the three months since Covid-19 became a thing.

For purposes of comparison, the rates for Locked-Down New York states are in a different planet:

  • New York’s reported cases amount to 1,100 per 100,000 population or 169X higher than the rate reported by Japan;
  • New York’s total WITH Covid death rate is 63 per 100,000 population or 450X that of Japan.

At the end of the day, the great H.L. Mencken got the essence of the matter right when he observed nearly a century ago that,

“The aim of politics is to keep the populace alarmed by menacing it with an endless series of hobgoblins, all of them imaginary.”

That is to say, the Covid-19 is real but it’s not remotely the kind of deathly pandemic that warrants trashing America’s entire economic and social life.

Recently, the Donald was making noises that are a reminder that even a blind squirrel occasionally finds an acorn:

“WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF.”

So just maybe the Donald will actually come through on the urgent need to “re-open” because at the moment that imperative outweighs everything else.

How Agorism Evolves Past The State

How Agorism Evolves Past The State

Agorism, in all its various forms, promotes self-reliance and independent entrepreneurial ventures. It is a process that is evolving past the State and making it obsolete.

We cannot disregard the State completely; we have no illusions about this. But evolving past the State is very much in our power. Today agorism is rapidly growing and evolving in countless manifestations…it is all around us. But what is agorism?

In its most specific form, agorism is an explicitly adopted lifestyle of purely voluntary exchanges. But in a general sense, agorism is essentially the sum of all human interactions that are consensual and voluntary. The common factor is this: since the State is a coercive institution, its role in human affairs is absent, or strictly minimized.

Lifestyle Agorism

An agorist lifestyle could be as simple as the bartering of goods such as home-grown produce, meat, baked goods, and beverages; as well as the bartering of services such as household or car repairs, babysitting and so on. It also involves normal buying and selling with money, but favoring interactions with fellow agorists.

Those who adopt this lifestyle will typically identify as agorists, and seek community with the like-minded. Agorists typically do not participate in politics. In general, and to the extent possible, agorists bypass and disregard the State. They continually strive for the goals of living free of State coercion, and minimizing the resources they make available to the State. Moreover, their lifestyle helps delegitimize the State: they provide clear proof that in the absence of government, there is flourishing of happiness, peace and progress.

Informal Agorism

Human interactions can be agorist, without people formally adopting the lifestyle. As we know, virtually all human activities are voluntary. This means that, insofar as they bypass or minimize involvement with the State, most actions are essentially agorist. When we consider some examples of voluntary, mutually beneficial arrangements, we realize how dynamic and pervasive the principle of agorism is.

Traditional agorist examples

In all these examples, and more, the State derives little or no revenue benefit, and regulation is minimized (if present at all)…

  • Private tutoring and homeschooling
  • Gardening services
  • Farmer’s markets
  • Local community protection services

Additionally, we are all familiar with contemporary examples of services that bring buyers and sellers directly together…

Airbnb

Private housing accommodations are a great example of agorism in action. Temporary living arrangements are certainly nothing new; we are quite familiar with hotels, rental properties and boarding houses. But these traditional examples come with varying degrees of State intervention such as taxes and zoning regulations.

The Airbnb model simplifies temporary housing transactions and makes them readily available to both property owner and renter. Although the State is attempting to find ways to intervene, it is much harder to regulate since transactions are person-to-person.

Uber and Lyft

The impact of these new private, individualized transportation modes is immeasurable. State versions of public transportation are clearly falling behind, with each passing year. But these new services are dynamic, flexible and affordable in ways that are impossible with buses, taxis and mass transit.

Internet for-sale websites

Sites such as Craigslist and eBay generate an enormous volume of trade between private parties. There is no central physical marketplace for the State to identify. Its ability to regulate and tax these marketplaces is virtually non-existent.

Big-picture technological agorism

The awesome power of modern technology has changed agorism itself. Evolving from its traditional roots in simple bartering, the information age brings agorism into the 21st century.

Alternative currencies

Electronic forms of currency have emerged in just the last decade. Still in their infancy, they are quickly evolving methods of true financial privacy. Although the State will impose temporary impediments, it will not be able to keep pace with the speed of innovation.

The State utterly depends on its monopoly over money. It is conceivable that in our lifetimes we will witness an evolution of currencies and financial methods that leave the State helpless. Alternative currencies present the single-most immediate prospect for the success of liberty. There is no need for an attack on the dollar; no need to advocate abolishing government agencies. Private trading methods using cryptocurrencies will simply evolve, and then dominate. The steady progress of technology will help relegate the State to the dustbin of history.

Education and Life Skills

Homeschooling and un-schooling continue to grow, producing well-adjusted, bright, confident and capable young people. More and more are emerging from their formative years without the impediment of State indoctrination. Meantime, public schools continue to excel only at producing prison-like environments and a cult-like worship of the State.

For young and old alike, the Internet is making possible the flow of knowledge in every imaginable field, allowing people to educate themselves and gain productive skills, on any subject of their choosing. The State remains a clueless bystander to this evolution.

Health

The stranglehold that the State has over the medical field is enormous. It is presently more difficult to see or imagine the positive potentials that agorism will bring to health. Yet the glimmers of hope are there. Mobile apps are making health research and monitoring more readily available. Alternatives are emerging to heavily regulated insurance: medical groups offering group-oriented health coverage, concierge medical services, to name a few.

The fields of Alternative Medicine and supplements are less regulated, and thus offer greater choices. And this goes hand-in-hand with the Voluntaryist principle of taking personal responsibility, both as producer and consumer.

And then, there’s politics

Political participants tend to make all the noise and get all the coverage; non-participants are silent. It is true that most non-participants do not identify as Voluntaryists or agorists. But whatever specific reason they have for not voting, it can be generalized to this: it is not worth their time.

We may not appreciate the importance of this compelling fact: a majority of the public does not vote. Which means they do not consider the State important enough to motivate them to participate in politics.

Agorists did not have to make that happen. The State did that all on its own…simply by making itself irrelevant to the people at large. As our life options continue to expand, the trend away from politics is likely to continue.

The wonderful results of agorism

Two amazing results emerge from agorism: one psychological, one strategic.

Those who are explicitly agorist tend to experience the psychological sense of inner freedom and true self-ownership, as the State is absent from their interactions.

But the strategic result brings benefits to everyone: agorism, in all its forms, draws resources away from the State, and reaffirms the irrelevancy of the State.

Conclusion

The State offers nothing of value. It produces only one thing: coercive force, with its resulting ugliness and misery. And like any bully, that is all it has. That is its natural limit.

But free people have everything to offer. Agorism can be a formally adopted lifestyle, or merely the natural inclination to interact voluntarily with others in peace. Either way, we create and build; we cooperate; we sing, dance, and love. We educate and grow. And we get better at it all the time.

We evolve. The State doesn’t. The future is indeed bright.

 

Reposted from https://how-agorism-evolves-past-the-state-19.webself.net/

That Didn’t Take Long: U.S. National Debt Exceeds $24 Trillion

That Didn’t Take Long: U.S. National Debt Exceeds $24 Trillion

The U.S. national debt pushed above $24 trillion on Tuesday.

The U.S. government was already running massive budget deficits long before the coronavirus pandemic and the debt was piling up at a dizzying pace. Response to the outbreak has put spending and debt in hyperdrive.

The Trump administration has added $1 trillion to the national debt in just six months.

It’s easy to just brush off the spending spree. Virtually everybody agrees the stimulus is necessary to deal with the economic impacts of coronavirus. But the Trump administration was stimulating long before this emergency. Uncle Sam was already on pace for a trillion-dollar shortfall long before the pandemic. That’s the kind of budget deficit one would expect to see during a major economic downturn.

The federal government has only run deficits over $1 trillion in four fiscal years, all during the Great Recession. The fifth trillion-dollar deficit was coming down the pike in fiscal 2020, despite what Trump kept calling “the greatest economy in the history of America.”

To put the growth of the national debt into perspective, the debt was at $19.95 trillion when President Trump took office in January 2017. It topped $22 trillion in February 2019.  That represented a $2.06 trillion increase in the debt in just over two years. By November 2019, the debt had eclipsed $23 trillion. Now, less than six months later, we’re at $24 trillion, with much of the coronavirus stimulus still in the pipeline. That’s a $4 trillion increase in the debt since Trump took office.

As Peter Schiff pointed out in a tweet, the president will add more debt in four years than President George W. Bush did in eight. If re-elected, he will add more debt in eight years than Bush and Obama did in 16.

Instead of draining the swamp, he is draining the nation.”

Ironically, there is bipartisan support for the massive coronavirus spending-spree and virtually no concern about the increasing debt. I say ironically because Republicans had a much different response when Obama pushed his stimulus plan through in response to the 2008 financial crisis. The GOP grassroots pitched a fit and the Tea Party was born. Today, many of the people who marched in those Tea Party rallies against the Obama spending are eagerly planning how to spend their MAGA-Bucks.

Trump supporters often claim the debt isn’t the president’s fault and the blame should fall on Congress. The legislative branch does bear its share of responsibility, but the White House has significant input into the budgeting process and the president has never once submitted a budget that cut overall spending.

In reality, the borrow and spend policies today are every bit as problematic as they were in the Tea Party days. In effect, we have the world’s biggest debtor trying to guarantee everybody else’s debt.

The massive debt raises a number of questions few people seem to be asking. For instance, how will all of this government borrowing impact the bond market?

Investors poured into U.S. Treasuries as a safe-haven as the coronavirus crisis grew. Interest rates plunged, with the yield on the 10-year Treasury dipping to record lows below 0.5 percent. At some point, the demand for bonds will ebb, but the supply certainly won’t. The  U.S. Treasury Department is going to have to sell a massive amount of bonds to fund all of this deficit spending.

The Federal Reserve has stepped in to backstop the borrowing. The central bank is set up and primed to monetize all of this debt through QE Infinity.

Through quantitative easing programs, the Fed buys U.S. Treasury bonds on the open market with money it creates out of thin air. Ostensibly, by creating artificial demand for Treasuries, the Fed can soak up excess supply and hold interest rates down. It has no choice but to intervene in the market because rising interest rates would be the death knell for this debt-riddled, overleveraged economy.

But the central bank will create trillions of dollars out of thin air and inject it into the economy in order to run this debt monetization scheme. That raises the specter of inflation. This is one reason Schiff recently said hyperinflation has gone from the worst-case scenario to the most likely scenario.

The Fed got away with this once. We didn’t see the type of price inflation one would expect with the three rounds of QE in the wake of the 2008 financial crisis. The inflation went into the stock market and other asset bubbles. That could conceivably happen again. But the last time around, then-Federal Reserve Chairman Ben Bernanke swore the QE wasn’t debt monetization. He promised it was a temporary expansion of the balance sheet. He insisted there was an exit strategy.

There was no exit.

And today, nobody is even talking about an exit strategy. Will investors actually believe this is going to be temporary? It seems unlikely.

I also see little concern about how all of this government debt will impact economic growth.

The CBO warned before the coronavirus pandemic that the growing “debt would dampen economic output over time.” In fact, studies have shown that GDP growth decreases by an average of about 30 percent when government debt exceeds 90 percent of an economy. U.S. debt already stood at around 106.9 percent of GDP before coronavirus. Ever since the U.S. national debt exceeded 90 percent of GDP in 2010, inflation-adjusted average GDP growth has been 33 percent below the average from 1960–2009, a period that included eight recessions.

Europe’s spending binge serves as a prime example of the impact of debt on economic growth.

Most people seem to believe the president will snap his fingers in the near future and the economy will snap back to normal. But the economy was broken before coronavirus. Now the government and the central banks are doubling down on the policies that broke it to begin with. There aren’t a lot of scenarios where this ends well.

Reprinted from The Tenth Amendment Center.

The Biggest Heist in Human History

The Biggest Heist in Human History

As he valiantly tried to get a recorded vote on House passage of the $2.2 trillion coronavirus bill (the CARE Act), Rep. Thomas Massie learned once again last month the chief difference between the members of Congress and the inmates of a maximum security prison: Supermax prison inmates have better character than members of Congress. 

He should have known this already, since few inmates of a maximum security prisons would say that the ongoing drone-killing of children and warring on al-Qaida’s behalf is morally necessary, as the majority of congressmen did

In this instance, however, the congressional moral turpitude was financial. It’s unimaginable to think of prisoners bragging about how their actions just swindled a gaggle of plumbers, waitresses and department store clerks out of their homes, but if you listened to the speeches of congressmen passing the bill, you’d think those clerks who will lose their homes should be grateful.   

Sure, lots of prisoners have been incarcerated for robbery, but they almost always rob from the rich. Congress used this bill to rob from the poor and working people in order to subsidize mega-corporations and banks from the tips of waitresses. “Some will rob you with a six-gun, and some with a fountain pen,” Woodie Guthrie once sang, but “as through your life you roam, you will never see an outlaw drive a family from their home.”  

The bill admittedly contained $300 billion in cash payments to citizens, but – thanks in part to a $454 billion accordion program through the Federal Reserve Bank – more than ten times that amount will go in the form of cash subsidies and discount loans to big banks and giant corporations. The bill is not really a $2.2 trillion bill, but is instead a $6 trillion bill, the overwhelming majority of which will go to politically-connected corporations and banks.

$454 billion into $4 trillion

The New York Times explained how the Fed can get $454 billion and turn it into $4 trillion: “Legally, the Fed is not allowed to buy debt that is not backed by the government. To achieve a degree of separation, it sets up a special purpose vehicle and then lends into it — which is why all of these programs are called ’emergency lending.’ The vehicle then snaps up bonds or makes loans to the private sector.” 

This, of course, is pretty much the definition of how money-laundering works. 

 The $1,200 “bailout” payment amounts to food money for the working stiffs about to lose their houses to the taxpayer-funded top 1% and bankers (but I repeat myself), who will take working people’s homes when assets are most depreciated and at fire-sale prices. It is, as Thomas Massie has repeatedly said, “the cheese in the trap.”

But the food money is necessary. Why? Because, as any shepherd knows, you can’t kill a sheep you want to keep fleecing.

The few leftists who comprehend economics understand how this will work. “It’s an abomination beyond all comprehension,” Dylan Ratigan explained on the March 26 Jimmy Dore podcast. “This is a further consolidation of wealth among the super-rich by giving only the super-rich money at a time when asset prices are down and everything is depressed so that the super-rich can take the taxpayer’s money and buy more of all the assets to increase their stranglehold and hammerlock on America.” 

Ratigan is a leftist, at odds with free market principles. But he’s not wrong. 

Ratigan even offered an interesting thought-experiment as an analogy: “Imagine, again, if I bankrupt everybody in Los Angeles, but only give a small group of people that are politically connected a bunch of money to go buy all the assets afterwards, who do you think is going to own all the businesses in Los Angeles a year from now?”

If you don’t think the financial sector is really psyched about the shutdown and their upcoming subsidies, you haven’t been paying attention. They’re laughing at the plebes over on K Street and Wall Street. And this has happened before.

The amount of crony-capitalism in this bill dwarfs the 2008 TARP bailout program, but even government’s actions during the 2008-09 crisis turned many major cities from home-owning cities to renting cities. It also turned the American people from, on average, employees of small businesses to employees of big businesses

Matt Taibbi of Rolling Stone magazine noted in his podcast “Useful Idiots” April 3 that: 

“The main thing that people will have to understand that what happened with this rescue package is that it commits the government to an unprecedented amount of support of Wall Street in particular. In the same way we saw in post-2008 all sorts of crazy profiteering and opportunities for banks and financial companies to make basically risk-free money, that stuff is completely baked into this rescue package that passed unanimously. 

“And just to take one small example for people to think about: One of the new forms of assistance that was different in this bill from 2008 is that the Fed and the Treasury are now going to be buying corporate bonds. So last time around the government basically spent a lot to prop up the mortgage markets. They bought mortgage-backed securities; they took bad mortgage assets off the books of the banks. That was one of the big things they did. This time they are expanding that activity to buying the debt of companies and supporting the bond market, which is a whole new galaxy of support.” 

Taibbi noted that financial giant Blackrock has been hired to disperse the loans, in many cases it’s likely the loans will go to companies whose debts they already manage. “It’s hard for people to even wrap their heads around the opportunities for profiteering and manipulation,” the exasperated Taibbi explained.

And that’s only one part of the bailout bill. There are other programs the Federal Reserve Bank has initiated to support banks that aren’t even part of the bill. The Fed has announced the availability of $1 trillion for overnight loans to banks, in addition to $1 trillion in 14-day loans it already announced, and at near-zero interest rates. Plus, they’ve eliminated the requirement for banks to have any reserves in their vaults to cover consumer and business deposits, an historical first. Because the Fed has lowered banks’ reserve requirements to zero, banks can loan out unlimited amounts of money to their wealthy friends, regardless of the amount of deposits in their vaults. So banks can issue debt out of thin air for nothing and with nothing. In effect, every member bank has become an inflationary Federal Reserve Bank, buying up depreciated assets the unemployed plebes can’t afford to keep any more. 

And just in case you think the corporate media will tell the American people the truth about what’s going on, when the Federal Reserve announced an additional $2.5 trillion corporate bailout program, CNBC went to a Blackrock official to get its “unbiased” opinion for its story. The corporate press “watchdog” is an obedient and highly trained lapdog of the establishment.

The establishment does this kind of bailout and corporate media cover-up every time there’s a recession. Whenever a certain set of rich, politically-connected cronies seem to be at risk of losing some of their money, the American public is informed “the whole economy” is going to collapse, and the taxpayer – particularly working people – need to pony up billions or trillions to the rich to buy up devalued assets during a recession. It has almost become an American tradition, like road rage, morbid obesity and undeclared wars against countries citizens can’t find on a map.

At least in the wake of the 2008 financial crisis, when nearly 10 million people were thrown out of their homes, a significant proportion of the homeowners bore the blame. With the NINA loans (no income, no assets), there were a lot of people buying houses who should never have expected to keep them. In the wake of the coronavirus shutdown, the majority of homeowners who lose their homes had stable incomes, if not for the panic-induced government-mandated economic shutdown. 

Nobody can blame homeowners today for buying homes just before the government tells them they aren’t allowed earn a living any more. But now the heavily taxed tips of waitresses will fund mega-banks to buy up the houses of those same waitresses who have recently become unemployed. Even if the waitresses are not actively paying taxes any more, the newly created money – through the mechanism of currency inflation – will crowd out the value of what remains of the working class’ homes and other hard assets. 

And congressmen will no doubt expect a thank-you for the food money they’ll give the proles back so they can survive … until the next fleecing. It’s important to stress that the CARE Act passed the Senate unanimously, with only Rand Paul (who was sick with coronavirus) and three other Republicans not voting. Sen. Bernie Sanders, that great class warrior and supposed enemy of the 1%, voted in favor of it, as did Sen. Elizabeth “Billionaire Tears” Warren. And even though he railed against the pork in the bill earlier in the week, Sen. Ted “Grandstand” Cruz voted in favor of the bill. 

There are some bright spots of good news, however miniscule. I suppose I should be grateful to appreciate small favors, to wit, that the Commonwealth of Massachusetts where I live views liquor store clerks as “essential workers.” But I’m also just cynical enough to think that it’s only because the government wants to keep us fat, drunk and stupid enough to accept unquestioningly the zombie quaranqueen shutdown propaganda.

It’s also good news that not all of the job losses will be permanent. As soon as the government-mandated shutdown ends, there will be a jobs “snap-back” and a lot of people will be re-hired to their old jobs, along with the reopening of a lot of shuttered businesses. 

The bad news is that the end of the shutdown will be too late, economically speaking, for many. And so long as the shutdown continues, the economic crisis will worsen. We know that of the average five million people who are losing their jobs per week during the shutdown, a proportion of them won’t be re-hired. We know it won’t be 100%, but it’s also not 0%. Nor is it a static number; it’s a rising percentage. The longer shuttered businesses accumulate fixed costs with no revenue, the more likely they are to close permanently. 

Moreover, huge downstream job losses are being created by this shutdown. The shutdown will kill the domestic economy of tens of millions of Americans, who will not be buying products they otherwise would have purchased later this year, leading to layoffs in every manufacturing and raw material industry from automobiles to zinc mines. And because the shutdown contagion is not only an American affliction, businesses relying on global trade will also find themselves during the global recession cutting back on both production and employment. 

Some free market economists like David Stockman and Gene Epstein are convinced that our private sector is dynamic and will snap back from the shutdown insanity. A few others (notably Peter Schiff) are more bearish because they are convinced that coronavirus simply pricked the bubble that had been forming anyway, and there’s no putting Humpty Dumpty back together again. 

They both have a point. Schiff is right that we were due for a recession anyway, though I doubt it would have been as severe as he was predicting, and this is largely because Stockman and Epstein are right about the market economy being dynamic. However, just because the private sector is dynamic doesn’t mean we’ll snap back to anything like full employment for many years. The market is dynamic but the government is not; look to the 2008-09 recovery as an example. Government “stimulus” intervention kept the recovery from snapping back a decade ago, as it had during the Great Depression of the 1930s. It took almost 10 years to recover from the 2008-09 financial crisis. It’s wishful thinking the markets will not have to navigate a minefield of government “assistance” once the recovery begins. 

Fiscally speaking, the $2.2 trillion COVID-19 bailout bill, combined with massive government shutdowns that will result in a sharp reduction in tax revenue, is more evidence that Trump is running the federal government like his casino – which filed for bankruptcy four times. The federal government will probably run a deficit close to $3 trillion for fiscal 2020.

In the past, America had politicians who only thought ahead to the next election. The coronavirus shutdown shows that today politicians only think as far in advance as the daily press conference. 

Of course, it’s the perfect storm for the politicians, since nobody can protest within our national leper colony right now because most of the nation under the equivalent of house arrest. It’s hard to gather in groups to protest the robbery of the working poor and middle classes when healthy people are supposed to be ringing a bell and yelling out “Unclean, unclean!” anytime we leave the house. 

If you want a specimen of how corporate media is definitely not on the side of liberty, consider this story from CNN on April 10, with the headline “Sweden challenges Trump – and scientific mainstream – by refusing to lock down.” The claim that the whole “scientific mainstream” is behind the economic shutdown is not based upon any real scientific experiments – you know, using the scientific method. No nation has ever in history even attempted a complete economic shutdown; there’s nothing they could study. Nor is it based upon polling actual scientists about their views. The whole “scientific mainstream” referred to in the article is about the “establishment political mainstream” supported by corporate media satraps. 

Sweden is not engaging in a reckless experiment; it’s doing what nations have always done in the face of pandemics: isolating the sick and those exposed to the sick and taking prudent measures to limit large crowds and protect the vulnerable. It’s the US, which copied Italy (run by “Stupid Mussolini,” who made the trains not run), China and most of Europe that are running the reckless experiment that’s trying to – economically speaking – turn the globe into a Thanos-post-snap world.

Indeed, nations that tracked both those with the disease and those exposed to the sick and didn’t shut down their whole economy – for example, South Korea, Taiwan and Singapore – have had better results controlling COVID-19 than the advanced nations which committed economic hari-kari by turning themselves into a leper colony archipelago. 

The reality is that panicked Karen government officials engaged in an insane experiment of national economic shutdown without any understanding of the science of what would happen. The government officials were never asked by the corporate media any of the following questions: 

1. If the “flatten the curve” strategy isn’t part of the federal government’s official strategy (and it’s NOT even mentioned in official documents), how can it work nationally?

2. How long do you think you can keep the shutdown going before food riots begin? How much of a new Great Depression are you willing to create in order to keep this shutdown going?

3. Do you expect your shutdown/“social distancing” campaign to abolish the virus completely?

4. At what point do you return to people working? How many infections – domestically and internationally – is the minimum number that keeps the shutdown going?

5. Do you really think Bangladesh, South Sudan and Haiti will “flatten the curve” by shutting down their economies to fight coronavirus? What do you do when poor countries understandably don’t follow our lead because they don’t want famine?

6. What do you do after the shutdown ends and that virus comes back out of control, either in the US domestically or internationally? If internationally, do you impose a blockade and create a famine in poor nations with tens of millions of dead? Bomb them into submission?

7. Do you think the disease will become less contagious once the shutdowns end? How can you guarantee we won’t have to re-impose a shutdown?

8. How do you re-impose a shutdown while we’re already in a depression with 20% unemployment and a bankrupt government? How do you think workers will take a new shutdown when Washington has no more money to dole out?

But government officials still need to be made to answer these questions, and should have before they imposed the shutdown. Americans need to grab a pair of Rowdy “Roddy” Piper’s glasses from “Them,” wake up the zombie quaranqueens, and demand answers to these questions along with an end to the economic shutdown to limit the accumulating damage. 

Then, they need to put a stop to the greatest heist in the history of the world. The $2 trillion in bailouts for Wall Street is only the beginning. Unfortunately, more is coming unless the people demand it stop.

Risk? We don’t Need No Stinking Risk!

Risk? We don’t Need No Stinking Risk!

We’ve crossed the monetary Rubicon. There is no going back to the way things were. With the creation of a series of Special Purpose Vehicles (SPV) the Treasury Dept. and the Federal Reserve have fundamentally altered the financial landscape of the United States.

We are no longer a country that tolerates the risk of capitalism. To be honest, we haven’t been that country for a very long time. Steadily over the course of my life (I was born in 1968 the year the London Gold Pool failed), the global monetary system has cut tie after tie to the discipline of the free market in money.

With the U.S. at the center of the system, it was inevitable that we would reach the point of no return once there was no other way to reflate the system.

And it has been in the service of arrogating the power of money creation, and by extension the power that confers to the printers, to a global oligarchy I’m fond of calling The Davos Crowd.

My last post was an open letter to these folks letting them know that no matter how much they try to scare us into accepting a world where they have total control over our lives their chances of success are limited because we can see them and what they are planning.

The response I’ve received from people to that post confirm my view on this. Few things I have written have generated the kind of passion I’ve seen from folks.

And this Davos Crowd is the most risk averse of any crowd there is. Because near unlimited power makes you both paranoid and stupid. Paranoid that the power will slip from your grasp and stupid because you believe yourself immune to the consequences of your actions.

They use that insane power of the printing press to erect walls around competition and ensure nothing but one-way trades where no matter what ‘risks’ they take, someone else pays the price for their failure.

Their failures are nearly complete today. Because when you divorce money creation from the discipline imposed by the proper pricing of risk you divorce the application of that money towards sustainable and productive activity.

These people were always monetary Marxists. And the Austrian economists of the last century accurately called them out on their methodological errors while ruthlessly applying their reason to predict exactly why it would all eventually fail.

Because mispricing risk by mucking with interest rates alters the structure of production to misallocate capital from where it is actually demanded in a free market for money to what they want to use it for: global governance, endless wars and the subjugation of humanity.

Money flows into projects which wouldn’t be funded otherwise and at the end of the business cycle reveals them to be uneconomic. This is why we’re staring at a world today that only needs 70-75 million barrels of oil per day versus the 100+ million we needed just last month.

This is why we’re staring at a world of endless strife and conflict and not one where the biggest thieves are brought to account for their actions but seeminingly rewarded for it.

And with each intervention to prop up asset prices, by keeping interest rates at or below zero, all that happens is the uneconomic businesses stay functioning far longer than they should have, ensuring that the next time the cycle turns against them, the needed intervention will be even bigger.

This is why every time there is a crisis the numbers get bigger, the responses more ludicrous and the effects on the real economy ever more brutal.

And guess who always bears the brunt of the collapse? Those that caused it with their profligacy and thievery? No.

You do. I do. And our children do.

When government creates a risk-free trade in one area of the economy it forces inordinate risk onto another area. It turns everyone into speculators and not builders of wealth. The money they print raises the demand for those commodities which they value while retarding the demand for the ones we value.

This is why the Quantity Theory of Money fails. It’s why the CPI and GDP are poor metrics to set in opposition to justify more money printing, more government intervention and bigger bailouts.

It only looks at the supply of money but ignores the demand for it. And right now, thanks to a biblical short position against the U.S. dollar demand for money is still insanely high.

It will allow them to ‘get away with this’ for another period of time.

Mises laid all of this out in The Theory of Money and Credit in 1912. The basics are all there in chapter one. And it’s why we’ve reached the end of the fiction of a debt-based monetary system here in the U.S.

But once the demand subsides, the money is still there. The latent inflation that doesn’t show up in the CPI is still there. There is no calling this money back in without deflating asset prices and causing the exact situation they are avoiding today.

We’ve reached the end of laying off risk onto a greater fool. There is no one else to sell the next round of debt to to finance the bailouts. So, now the Fed and the Treasury have merged, as Jim Bianco pointed out two weeks ago, to ensure the free flow of money completely unmoored from risk.

This is the Rubicon I said we crossed at the beginning of the article.

This allows the U.S. government to complete its transformation into an entity wholly indistinguishable at this level from China with state ownership of strategically and systemically important businesses.

From my latest piece at Money and Markets:

This, folks, is pure MMT — Modern Monetary Theory. The Fed is creating money out of thin air having bought the debt they never intend to sell from the Treasury so that it can buy whatever it wants and will have Blackrock (NYSE: BLK) be the fund manager, to make the whole thing quasi-legal.

The only functional difference between this and Lincoln’s Greenbacks of the Civil War year (1861-63) is the accounting fiction of the asset (U.S. Treasurys) on the Fed’s balance sheet.  Functionally, there is zero difference.

And the funny part about this is that it was done by the so-called fiscally responsible Republican president. Now Trump is happy with his Federal Reserve Chairman, Jerome Powell. In order to save the stock market, the frackers, the municipalities, the 16 million people who have lost their jobs in the past three weeks (and possibly the stink bugs hounding my blueberry bushes), they will print whatever money is needed to forestall the cure for what ails the world — deflation.

They will buy whatever assets they feel they have to (or just want to) to save their skins and maintain the power amassed to this point. The moral hazard will be as biblical as the short position against the dollar. The outright thievery of good businesses ruined by this bust will happen right alongside the bailout of of the crappy ones.

And they will expect us to thank them for it.

Risk isn’t just something for the other guy to worry about. It is the nature of life itself. They can avoid it for another phase of the cycle but they can’t avoid it forever.

Because the real risk on the table today is the risk of us no longer believing that funny money holds any value at all. When we’re sitting at home, out of work and destitute and prices for the things we need to stay alive rise above our ability to pay for them, that’s when things get real.


Follow Tom Luongo at Gold Goats ‘N Guns

Why Central Planning by Medical Experts Will Lead to Disaster

Why Central Planning by Medical Experts Will Lead to Disaster

A great deal of the coverage of the COVID-19 crisis has been apocalyptic. That is partly because “if it bleeds, it leads.” But it is also because some of the medical experts with media megaphones have put forward potentially catastrophic scenarios and drastic plans to deal with them, reinforced by assertions that the rest of us should “listen to the experts,” because only they know enough to determine policy. Unfortunately, those experts don’t know enough to determine appropriate policies.

Doctors, infectious disease specialists, epidemiologists, etc. know more things about diseases, their courses, what increases or decreases their rate of spread, and so on than most. But the most crucial of that information has been browbeaten into the rest of us by now. Limited and imperfect testing also means that the available statistics may be very misleading (e.g., is an uptick in reported cases real or the result of an increasing rate of, or more accuracy in, testing, which is crucial to determining the likely future course COVID-19?). Further, to the extent that the virus’s characteristics are unique, no one knows exactly what will happen. All of that makes “shut up and listen” advice less compelling.

More important, however, may be that in making recommendations to address COVID-19, those with detailed knowledge of the disease (the experts we have been told to obey) do not have sufficient knowledge of the consequences of their “solutions” for the economy and society to know what the costs will be. That means that they don’t know enough to accurately compare the benefits to the costs. In particular, because of their relative unawareness of the many margins at which effects will be felt, the medical experts we are being told to follow will likely underestimate those costs. When combined with their natural desire to solve the medical problem, however severe it might get, this can lead to overly draconian proposals.

This issue has been brought to the fore by the increasing number of people who have begun questioning the likelihood of the apocalyptic scenarios driving the “OMG! We need to do everything that might help” tweetstorms, on the one hand, and those who are emphasizing that “shutting down the economy” is far more costly than planners recognized, on the other.

Those who have brought up such issues (how long before they are called “COVID deniers”?) have been pilloried for it. Exhibit A is the vilification of President Trump for “ignoring the scientists,” such as the New York Time’s claim that “Trump thinks he knows better than the doctors” after he tweeted that “We cannot let the cure be worse than the problem itself.”

One major problem with such attacks is the substantial literature documenting the adverse health effects of worsening economic conditions. For just one example, an analysis of the 2008 economic meltdown in The Lancet estimated that it “was associated with over 260,000 excess cancer deaths in the OECD alone, between 2008–2010.” That is a massive “detail” to ignore in forming policy.

In other words, the tradeoff is not just a matter of lives lost versus money, as it is often portrayed as being (e.g., New York governor Cuomo’s assertion that “we’re not going to put a dollar figure on human life”). It is a tradeoff between lives lost due to COVID and lives that will be lost due to the policies adopted to reduce COVID deaths.

Larry O’Connor put this well at Townhall when he wrote:

Why should the scientific analysis of doctors solely focusing on the spread of the coronavirus carry more weight than the very real scientific analysis of the deadly health ramifications of shutting down our economy? Doesn’t the totality of the data make the argument for a balanced approach to this crisis?

This issue reminds me of a classic discussion of specialists and planning in chapter 4 of F.A. Hayek’s The Road to Serfdom. “The Inevitability of Planning” is well worth noting today:

Almost every one of the technical ideals of our experts could be realized…if to achieve them were made the sole aim of humanity.

We all find it difficult to bear to see things left undone which everybody must admit are both desirable and possible. That these things cannot all be done at the same time, that any one of them can be achieved only at the sacrifice of others, can be seen only by taking into account factors which fall outside any specialism…[which] forces us to see against a wider background the objects to which most of our labors are directed.

Every one of the many things which, considered in isolation, it would be possible to achieve…creates enthusiasts for planning who feel confident…[of] the value of the particular objective…But it is…foolish to quote such instances of technical excellence in particular fields as evidence of the general superiority of planning.

The hopes they place in planning…are the result not of a comprehensive view of society but rather of a very limited view and often the result of a great exaggeration of the importance of the ends they place foremost…it would make the very men who are most anxious to plan society the most dangerous if they were allowed to do so—and the most intolerant of the planning of others…there could hardly be a more unbearable—and much more irrational—world than one in which the most eminent specialists in each field were allowed to proceed unchecked with the realization of their ideals.

Panic has seldom improved the rationality of decision-making (beyond the “fight or flight” reaction to facing a “man-eater,” when to stop and think means certain death). However, much of media coverage has fed panic. But the illogical and intemperate media attacks against those questioning the rationality of draconian “solutions” drown out, rather than enable, objective discussion of real tradeoffs. And if “Democracy dies in darkness,” as the Washington Post proclaims, we should remember that it does not require total darkness. The same conclusion follows when people are kept in the dark about major aspects of the reality they face.

Reprinted from the Independent Institute.

The Fed’s War on Savings

The Fed’s War on Savings

During a March 17 address to the nation in response to the COVID-19 outbreak, President Donald Trump asked that Americans work from home, postpone unnecessary travel, and limit social gatherings to no more than 10 people. Ten days later, Trump signed a stimulus package of over $2 trillion dollars to provide relief to an economy on the precipice of collapse. The aid package includes handouts and loans to individuals, small businesses, and other distressed industries.

Read the rest at the Tenth Amendment Center.

Crisis Exposes Devastating Consequences of Fed Policy: Americans Have No Savings

Crisis Exposes Devastating Consequences of Fed Policy: Americans Have No Savings

Two weeks ago, during a March 17 address to the nation in response to the COVID-19 outbreak, President Donald Trump asked that Americans work from home, postpone unnecessary travel, and limit social gatherings to no more than 10 people.

And last week, on March 27, Trump signed a stimulus package of over $2 trillion dollars to provide relief to an economy on the precipice of collapse.

The aid package includes handouts and loans to individuals, small businesses, and other distressed industries.

Despite Trump’s “having created the greatest Economy in the history of our Country,” when the markets tanked, massive and immediate government intervention was the only thing left to forestall a total collapse.

So why can’t greatest economy in the world can’t handle a temporary shock without needing trillions of dollars injected to stay afloat?

The Federal Reserve and its vicious and ongoing war on savers are to blame.

Using the Federal Reserve Note – commonly (but incorrectly) referred to as the dollar – introduces a dilemma. Because of inflationary monetary policy, Americans have long been forced to select among three undesirable options:

  1. A) Save. Hold Federal Reserve Notes and be guaranteed to lose at least 2% in purchasing power every single year.
  2. B) Consume. Spend Federal Reserve Notes on immediate goods and services to get the most out of current purchasing power.
  3. C) Speculate. Try to beat the Fed’s deliberate inflation, seeking a higher return by investing in complicated and unstable asset markets.

With businesses and Americans defaulting on their rent and other obligations only days into the collapse, the problem is clear: Few have any savings… and why should they when saving their money at negative real rates of return has been a sucker’s game?

Lack of sound money, or money that doesn’t maintain its purchasing power over time, has discouraged savings while encouraging debt-financed consumption.

American businesses and individuals are so over-leveraged that once their income goes away, even briefly, they are too often left with nothing.

Fiat money is especially pernicious in the way it harms its users. To some, small 2% losses can go easily unnoticed, year to year. Over 100 years, the loss has been well over 97%.

And who can save for emergencies when you’re being forced to work and spend more – simply to maintain the same quality of life?

Over 100 years, the Federal Reserve has destroyed more than 97% of our currency’s purchasing power.

With the Fed slashing short-term rates to zero, the US Federal Reserve Note has been further destroyed as a method of preserving savings. (And negative nominal interest rates could be coming next.)

Inflationary economic policy, absent the guardrails of sound money, has created a situation with an obvious and deadly conclusion: that many Americans lack savings to protect themselves against downturns.

This situation isn’t necessarily the fault of the people, but rather the fault of a system in which discouraging and punishing savers is a crucial tenet of the entire framework.

The Federal Reserve, the U.S. Treasury, and the White House are trying to reassure the public that everything is “under control,” that “the U.S. economy’s fundamentals are still strong,” and that the economy will skyrocket once COVID-19 is taken care of. What if they’re wrong?

Maybe the greatest monetary experiment in history is coming to an end. Maybe sound money can still save the day, but we must not waste any more time in restoring it.

Airline Bailouts Destabilize the Economy and Inflate Asset Prices

Airline Bailouts Destabilize the Economy and Inflate Asset Prices

In the end, after all of the political posturing and all of the speeches and exhortations for Congress to “do something,” a $2 trillion “coronavirus stimulus” bill landed on the president’s desk for The Donald to sign. And sign he did, uttering all of the platitudes and everything else that comes with “historic” spending legislation that never should have seen the light of day. Although COVID-19 has helped expose vast weaknesses in public health systems in the USA, it also has shown that with much of corporate America, the emperor has no clothes.

Although tracking where the money goes is not an easy thing, we do know that the airlines will receive about $50 billion in cash and loans, while Boeing will receive a share of $17 billion earmarked for industries favored by Congress. Another $500 billion will go to cruise lines, hotels, and other firms that have lost business because of travel restrictions and the economic shutdowns.

Politicians of both parties heaped praise upon themselves for their “bipartisan” efforts, which in real life only can mean that Congress cleaned out what was left of the IOUs in the till. Rep. Thomas Massie, a Republican from Kentucky, drew attacks from all sides as he tried to force a roll call vote (as opposed to the voice vote that the members wanted) and announced his opposition to the bailout. President Trump called for his expulsion from the Republican Party while Democrats declared him to be an unsavory ideologue.

There is not much to do but to wait for the results, and they will unfold over time. However, much of this bill’s harm is invisible, the way that termites quietly but surely destroy a house when homeowners fail to detect them. The politicians and the pundits, along with corporate executives, are hailing this infusion of public funds to business as a lifeline to the economic system itself, when, in reality, it will weaken these firms in the long run.

This commentary deals mostly with the airlines, but what we say here applies to any firm receiving rescue funds and loan guarantees. While some of these essentially bankrupt firms gain some relief as taxpayers and consumers pony up to pay the companies’ bills, the temporary cash infusion allows them to kick the financial can down the road and not deal with the underlying problems that they are facing, at least for now.

In a recent New York Times op-ed piece, Tim Wu of Columbia University asks the following: “Are taxpayers rewarding a decade of bad behavior?” If he is asking specifically about US airline firms, the answer is a resounding yes. Wu notes that in recent years the airlines have been very profitable but that instead of building defenses against possible downturns that are not easily predicted (such as the coronavirus crisis), they have used much of their profitability to buy back their own stock.

Obviously, stock buybacks are controversial, and as long as stock prices rise, company officials look like financial geniuses. However, if the markets crash or if bears loom on the horizon, all of that value vanishes very quickly and the companies are left in worse shape than when they began. As a financial strategy, stock buybacks are inherently risky and tie up cash that could go toward capital development or even the “rainy day” fund for the inevitable market downturn. Writes Wu:

During the past decade, flush with cash, most of the companies in line to get taxpayer money did not prepare for a downturn. Instead, they spent enormous sums on stock buybacks, which reward shareholders and increase executive pay. For example, the airline industry, which is prone to booms and busts, collectively spent more than $45 billion on stock buybacks over the past eight years. As recently as March 3 of this year, with the crisis already beginning, the Hilton hotel chain put $2 billion into a stock buyback.

Such behavior is especially galling given that the airlines received a major bailout in the immediate wake of the 2001 September 11 attacks that severely damaged that industry. Likewise, Congress spread out the rescue money in 2008 and 2009 to deal with the infamous housing bubble that the government and the Federal Reserve System created. Yet here are the Usual Suspects once again gathering around Washington, collective hats in hand.

Airlines this time are promising (or at least say they are promising) not to use the newest amount of rescue money to engage in stock buybacks, but that hardly is reassuring. There is a larger problem, and it is not limited just to overvaluing their stock or their inability to learn any lessons from past disasters.

The greater problem of which we speak the Federal Reserve’s ongoing policy of pumping up the system the way that nineteenth-century cattle ranchers would “water” their herds shortly before sales by feeding them salt. The overly thirsty cattle would drink more water than usual, and when they would be weighed during a sale, would seem heavier—and fatter—than they really were.

While Fed pumping (and simultaneous suppression of interest rates) inflates the value of stock—providing a façade of an economy performing better than it really is—it also inflates the capital assets of companies, and airlines are no exception. Because of past bailouts, glorified money printing by the Fed, and corporate practices such as stock buybacks, the nominal values of these firms are substantially higher than they would be in a more free market.

It is not difficult to see the vast network of market misrepresentations that has come with these policies. Wu notes:

The past decade was also an “easy money” decade, thanks to federal monetary policy that favored liquidity and low interest rates. Many of the firms now asking for bailouts took advantage of low interest rates to borrow heavily. For their part, many creditors lent money at rates that did not fully reflect the risks to these industries. The debt loads have created their own fragilities during the economic downturn.

In other words, one set of policies to get around natural market constraints has led to one distortion after another. We now are at the point where airlines—and the banks that have been underwriting them—are hooked on cheap money, inflated stock prices, and overvalued capital assets. If Congress, Trump, and the Fed actually were to step back and let market forces work, the short-term results would be devastating—to current airline management. Yes, the airlines would be bankrupt, but in real terms, they have been bankrupt for a long time and the COVID-19 crisis now has exposed this industry for the financial fraud that it has been.

Given that the various players previously mentioned have decided to keep the fraudulence afloat, what does that mean for the future of the airline industry? One cannot necessarily predict future events and when they will happen, but one can say with utmost certainty that the airlines soon enough will bring a new generation of management to Washington bearing the same tin cups that their forebears carried.

There is no doubt that airlines, along with Boeing and almost certainly Airbus, will find themselves in a future crisis that keeps them at least partially grounded. It could be another pandemic, a terrorist attack, or just awful political leadership, but one can be sure that something will occur to significantly reduce airline ridership. Reduced ridership means reduced funds, and a similar scenario to what we see currently playing out is sure to follow. At some point, however, the financial damage will be so great that not even the Fed will be able to “water” airline stock anymore and the cold water of massive bankruptcies will follow, imperiling the entire financial system.

These bailouts don’t just reward irresponsible business behavior, but they also impose restrictions that will create future problems. Airline firms receiving federal funding are not permitted to cut worker pay or lay off workers until at least September 30, which means that the aid is a glorified welfare check to labor unions representing airline workers. (The bailout rules also forbid stock buybacks and freeze executive pay at 2019 levels.) Bloated union contracts also are part of the problem with airline financial policies, so, in the end, Congress and Trump have managed to reward most, if not all, of the bad actors in this sorry saga.

What is done is done, but at least we can take a look at what would have happened had Congress just said no to the airlines this time. Unlike the current situation, in which we will see the “good” effects first and the “bad” effects down the road, a “solve your own problems” approach to the airlines would result in immediate layoffs, bankruptcies, and at least some airlines would completely go out of business.

Although most politicians and airline executives want us to believe that airlines are an “essential” industry that is the equivalent of the “thin blue line” between prosperity and a depressed economy, the markets see things differently. First, and most important, with the current situation there is no way that airlines can meet their loan payments, issue stock dividends, or even pay all of their employees at current rates (including their executives). Faced with that situation, the healthier companies would most likely come to terms with their creditors and restructure their finances.

The unlucky firms, however, would go into Chapter 7 bankruptcy, with all assets sold to pay off their creditors. That means massive layoffs, fewer flights—and realistic valuation of their assets. If the economic need for airlines really were as great as airline executives and political pundits claim, then whoever has purchased those assets at bargain prices would be able to put them to use in no time. The industry will have had its necessary cold-water bath, and asset values, along with prices of airline tickets, would settle at true market values, not the bloated numbers that pollute current airline balance sheets.

Because the “bad effects” of allowing airlines to go under would result at first in massive layoffs, bankruptcies, and fewer passengers in the air, the media and political classes would be condemning those who voted down the federal largess. “Bad effects,” not surprisingly, are quite visible and the plight of the newly unemployed and of stranded travelers plays well on the news.

The “good effects,” however, are less visible. By the time airline assets were sold at bankruptcy auctions and new companies hit the airport runways with market-priced capital and market-paid employees, the media would be on another crusade and the resurrection of airlines would not receive the coverage it deserved.

By shoveling out cash to the airlines and more promises to the banks whose unsteady solvency always lurks in the background, Congress and Trump have perpetrated a financial fraud greater than much of the mess we saw on Wall Street more than a decade ago. Yes, they will receive praise in the media and votes from those grateful to have taxpayers pay their wages and salaries, but they have solved no problems and have created a generation of new ones. Almost surely we will be covering the next crisis on these pages.

Reprinted from The Mises Institute.

A Dog that Didn’t Bark

A Dog that Didn’t Bark

Not so long ago we might have been seeing public-service announcements like this:

For the duration of the pandemic, please use the internet and your cell phone for essential purposes only. It is imperative that we keep the bandwidth open for emergency use. Thank you for your cooperation.

Warren Harding and the Forgotten Depression of 1920

Warren Harding and the Forgotten Depression of 1920

It is a cliché that if we do not study the past we are condemned to repeat it. Almost equally certain, however, is that if there are lessons to be learned from an historical episode, the political class will draw all the wrong ones — and often deliberately so.

Far from viewing the past as a potential source of wisdom and insight, political regimes have a habit of employing history as an ideological weapon, to be distorted and manipulated in the service of present-day ambitions. That’s what Winston Churchill meant when he described the history of the Soviet Union as “unpredictable.”

For this reason, we should not be surprised that our political leaders have made such transparently ideological use of the past in the wake of the financial crisis that hit the United States in late 2007. According to the endlessly repeated conventional wisdom, the Great Depression of the 1930s was the result of capitalism run riot, and only the wise interventions of progressive politicians restored prosperity.

Many of those who concede that the New Deal programs alone did not succeed in lifting the country out of depression nevertheless go on to suggest that the massive government spending during World War II is what did it.1 (Even some nominal free marketeers make the latter claim, which hands the entire theoretical argument to supporters of fiscal stimulus.)

The connection between this version of history and the events of today is obvious enough: once again, it is claimed, wildcat capitalism has created a terrific mess, and once again, only a combination of fiscal and monetary stimulus can save us.

In order to make sure that this version of events sticks, little, if any, public mention is ever made of the depression of 1920–1921. And no wonder — that historical experience deflates the ambitions of those who promise us political solutions to the real imbalances at the heart of economic busts.

The conventional wisdom holds that in the absence of government countercyclical policy, whether fiscal or monetary (or both), we cannot expect economic recovery — at least, not without an intolerably long delay. Yet the very opposite policies were followed during the depression of 1920–1921, and recovery was in fact not long in coming.

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover — falsely characterized as a supporter of laissez-faire economics — urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.

The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.

It is instructive to compare the American response in this period to that of Japan. In 1920, the Japanese government introduced the fundamentals of a planned economy, with the aim of keeping prices artificially high. According to economist Benjamin Anderson,

The great banks, the concentrated industries, and the government got together, destroyed the freedom of the markets, arrested the decline in commodity prices, and held the Japanese price level high above the receding world level for seven years. During these years Japan endured chronic industrial stagnation and at the end, in 1927, she had a banking crisis of such severity that many great branch bank systems went down, as well as many industries. It was a stupid policy. In the effort to avert losses on inventory representing one year’s production, Japan lost seven years.3

The United States, by contrast, allowed its economy to readjust. “In 1920–21,” writes Anderson,

we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again.… The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.

The federal government did not do what Keynesian economists ever since have urged it to do: run unbalanced budgets and prime the pump through increased expenditures. Rather, there prevailed the old-fashioned view that government should keep taxation and spending low and reduce the public debt.4

Those were the economic themes of Warren Harding’s presidency. Few presidents have been subjected to the degree of outright ridicule that Warren Harding endured during his lifetime and continues to receive long after his death. But the conventional wisdom about Harding is wrong to the point of absurdity: even the alleged “corruption” of his administration was laughably minor compared to the presidential transgressions we have since come to take for granted.

In his 1920 speech accepting the Republican presidential nomination, Harding declared,

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn’t been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

It is hardly necessary to point out that Harding’s counsel — delivered in the context of a speech to a political convention, no less — is the opposite of what the alleged experts urge upon us today. Inflation, increased government spending, and assaults on private savings combined with calls for consumer profligacy: such is the program for “recovery” in the 21st century.

Not surprisingly, many modern economists who have studied the depression of 1920–1921 have been unable to explain how the recovery could have been so swift and sweeping even though the federal government and the Federal Reserve refrained from employing any of the macroeconomic tools — public works spending, government deficits, and inflationary monetary policy — that conventional wisdom now recommends as the solution to economic slowdowns. The Keynesian economist Robert A. Gordon admitted that “government policy to moderate the depression and speed recovery was minimal. The Federal Reserve authorities were largely passive.… Despite the absence of a stimulative government policy, however, recovery was not long delayed.”5

Another economic historian briskly conceded that “the economy rebounded quickly from the 1920–1921 depression and entered a period of quite vigorous growth” but chose not to comment further on this development.6 “This was 1921,” writes the condescending Kenneth Weiher, “long before the concept of countercyclical policy was accepted or even understood.”7 They may not have “understood” countercyclical policy, but recovery came anyway — and quickly.

One of the most perverse treatments of the subject comes at the hands of two historians of the Harding presidency, who urge that without government confiscation of much of the income of the wealthiest Americans, the American economy will never be stable:

The tax cuts, along with the emphasis on repayment of the national debt and reduced federal expenditures, combined to favor the rich. Many economists came to agree that one of the chief causes of the Great Depression of 1929 was the unequal distribution of wealth, which appeared to accelerate during the 1920s, and which was a result of the return to normalcy. Five percent of the population had more than 33 percent of the nation’s wealth by 1929. This group failed to use its wealth responsibly.… Instead, they fueled unhealthy speculation on the stock market as well as uneven economic growth.8

If this absurd attempt at a theory were correct, the world would be in a constant state of depression. There was nothing at all unusual about the pattern of American wealth in the 1920s. Far greater disparities have existed in countless times and places without any resulting disruption.

In fact, the Great Depression actually came in the midst of a dramatic upward trend in the share of national income devoted to wages and salaries in the United States — and a downward trend in the share going to interest, dividends, and entrepreneurial income.9 We do not in fact need the violent expropriation of any American in order to achieve prosperity, thank goodness.

It is not enough, however, to demonstrate that prosperity happened to follow upon the absence of fiscal or monetary stimulus. We need to understand why this outcome is to be expected — in other words, why the restoration of prosperity in the absence of the remedies urged upon us in more recent times was not an inconsequential curiosity or the result of mere happenstance.

“The central bank is in a war against reality.”

First, we need to consider why the market economy is afflicted by the boom–bust cycle in the first place. The British economist Lionel Robbins asked in his 1934 book The Great Depression why there should be a sudden “cluster of error” among entrepreneurs.

Given that the market, via the profit-and-loss system, weeds out the least competent entrepreneurs, why should the relatively more skilled ones that the market has rewarded with profits and control over additional resources suddenly commit grave errors — and all in the same direction? Could something outside the market economy, rather than anything that inheres in it, account for this phenomenon?

Ludwig von Mises and F.A. Hayek both pointed to artificial credit expansion, normally at the hands of a government-established central bank, as the nonmarket culprit. (Hayek won the Nobel Prize in 1974 for his work on what is known as Austrian business-cycle theory.) When the central bank expands the money supply — for instance, when it buys government securities — it creates the money to do so out of thin air.

This money either goes directly to commercial banks or, if the securities were purchased from an investment bank, very quickly makes its way to the commercial banks when the investment banks deposit the Fed’s checks. In the same way that the price of any good tends to decline with an increase in supply, the influx of new money leads to lower interest rates, since the banks have experienced an increase in loanable funds.

The lower interest rates stimulate investment in long-term projects, which are more interest-rate sensitive than shorter-term ones. (Compare the monthly interest paid on a thirty-year mortgage with the interest paid on a two-year mortgage — a tiny drop in interest rates will have a substantial impact on the former but a negligible impact on the latter.) Additional investment in, say, research and development (R&D), which can take many years to bear fruit, will suddenly seem profitable, whereas it would not have been profitable without the lower financing costs brought about by the lower interest rates.

We describe R&D as belonging to a “higher-order” stage of production than a retail establishment selling hats, for example, since the hats are immediately available to consumers while the commercial results of R&D will not be available for a relatively long time. The closer a stage of production is to the finished consumer good to which it contributes, the lower a stage we describe it as occupying.

On the free market, interest rates coordinate production across time. They ensure that the production structure is configured in a way that conforms to consumer preferences. If consumers want more of existing goods right now, the lower-order stages of production expand. If, on the other hand, they are willing to postpone consumption in the present, interest rates encourage entrepreneurs to use this opportunity to devote factors of production to projects not geared toward satisfying immediate consumer wants, but which, once they come to fruition, will yield a greater supply of consumer goods in the future.

“Popular rhetoric notwithstanding, government cannot be run like a business.”

Had the lower interest rates in our example been the result of voluntary saving by the public instead of central-bank intervention, the relative decrease in consumption spending that is a correlate of such saving would have released resources for use in the higher-order stages of production. In other words, in the case of genuine saving, demand for consumer goods undergoes a relative decline; people are saving more and spending less than they used to.

Consumer-goods industries, in turn, undergo a relative contraction in response to the decrease in demand for consumer goods. Factors of production that these industries once used — trucking services, for instance — are now released for use in more remote stages of the structure of production. Likewise for labor, steel, and other nonspecific inputs.

When the market’s freely established structure of interest rates is tampered with, this coordinating function is disrupted. Increased investment in higher-order stages of production is undertaken at a time when demand for consumer goods has not slackened. The time structure of production is distorted such that it no longer corresponds to the time pattern of consumer demand. Consumers are demanding goods in the present at a time when investment in future production is being disproportionately undertaken.

Thus, when lower interest rates are the result of central bank policy rather than genuine saving, no letup in consumer demand has taken place. (If anything, the lower rates make people even more likely to spend than before.) In this case, resources have not been released for use in the higher-order stages. The economy instead finds itself in a tug-of-war over resources between the higher- and lower-order stages of production.

With resources unexpectedly scarce, the resulting rise in costs threatens the profitability of the higher-order projects. The central bank can artificially expand credit still further in order to bolster the higher-order stages’ position in the tug of war, but it merely postpones the inevitable.

If the public’s freely expressed pattern of saving and consumption will not support the diversion of resources to the higher-order stages, but, in fact, pulls those resources back to those firms dealing directly in finished consumer goods, then the central bank is in a war against reality. It will eventually have to decide whether, in order to validate all the higher-order expansion, it is prepared to expand credit at a galloping rate and risk destroying the currency altogether, or whether instead it must slow or abandon its expansion and let the economy adjust itself to real conditions.

It is important to notice that the problem is not a deficiency of consumption spending, as the popular view would have it. If anything, the trouble comes from too much consumption spending, and as a result too little channeling of funds to other kinds of spending — namely, the expansion of higher-order stages of production that cannot be profitably completed because the necessary resources are being pulled away precisely by the relatively (and unexpectedly) stronger demand for consumer goods. Stimulating consumption spending can only make things worse, by intensifying the strain on the already collapsing profitability of investment in higher-order stages.

“Mises compared an economy under the influence of artificial credit expansion to a master builder commissioned to construct a house that (unbeknownst to him) he lacks sufficient bricks to complete.”

Note also that the precipitating factor of the business cycle is not some phenomenon inherent in the free market. It is intervention into the market that brings about the cycle of unsustainable boom and inevitable bust.10 As business-cycle theorist Roger Garrison succinctly puts it, “Savings gets us genuine growth; credit expansion gets us boom and bust.”11

This phenomenon has preceded all of the major booms and busts in American history, including the 2007 bust and the contraction in 1920–1921. The years preceding 1920 were characterized by a massive increase in the supply of money via the banking system, with reserve requirements having been halved by the Federal Reserve Act of 1913 and then with considerable credit expansion by the banks themselves.

Total bank deposits more than doubled between January 1914, when the Fed opened its doors, and January 1920. Such artificial credit creation sets the boom–bust cycle in motion. The Fed also kept its discount rate (the rate at which it lends directly to banks) low throughout the First World War (1914–1918) and for a brief period thereafter. The Fed began to tighten its stance in late 1919.

Economist Gene Smiley, author of The American Economy in the Twentieth Century, observes that “the most common view is that the Fed’s monetary policy was the main determinant of the end of the expansion and inflation and the beginning of the subsequent contraction and severe deflation.”12 Once credit began to tighten, market actors suddenly began to realize that the structure of production had to be rearranged and that lines of production dependent on easy credit had been erroneously begun and needed to be liquidated.

We are now in a position to evaluate such perennially fashionable proposals as “fiscal stimulus” and its various cousins. Think about the condition of the economy following an artificial boom. It is saddled with imbalances. Too many resources have been employed in higher order stages of production and too few in lower-order stages.

These imbalances must be corrected by entrepreneurs who, enticed by higher rates of profit in the lower-order stages, bid resources away from stages that have expanded too much and allocate them toward lower-order stages where they are more in demand. The absolute freedom of prices and wages to fluctuate is essential to the accomplishment of this task, since wages and prices are indispensable ingredients of entrepreneurial appraisal.

In light of this description of the postboom economy, we can see how unhelpful, even irrelevant, are efforts at fiscal stimulus. The government’s mere act of spending money on arbitrarily chosen projects does nothing to rectify the imbalances that led to the crisis.

It is not a decline in “spending” per se that has caused the problem. It is the mismatch between the kind of production the capital structure has been misled into undertaking on the one hand, and the pattern of consumer demand, which cannot sustain the structure of production as it is, on the other.

And it is not unfair to refer to the recipients of fiscal stimulus as arbitrary projects. Since government lacks a profit-and-loss mechanism and can acquire additional resources through outright expropriation of the public, it has no way of knowing whether it is actually satisfying consumer demand (if it is concerned about this at all) or whether its use of resources is grotesquely wasteful. Popular rhetoric notwithstanding, government cannot be run like a business.13

Monetary stimulus is no help either. To the contrary, it only intensifies the problem. In Human Action, Mises compared an economy under the influence of artificial credit expansion to a master builder commissioned to construct a house that (unbeknownst to him) he lacks sufficient bricks to complete. The sooner he discovers his error the better. The longer he persists in this unsustainable project, the more resources and labor time he will irretrievably squander.

Monetary stimulus merely encourages entrepreneurs to continue along their unsustainable production trajectories; it is as if, instead of alerting the master builder to his error, we merely intoxicated him in order to delay his discovery of the truth. But such measures make the eventual bust no less inevitable — merely more painful.

If the Austrian view is correct — and I believe the theoretical and empirical evidence strongly indicates that it is — then the best approach to recovery would be close to the opposite of these Keynesian strategies. The government budget should be cut, not increased, thereby releasing resources that private actors can use to realign the capital structure.

The money supply should not be increased. Bailouts merely freeze entrepreneurial error in place, instead of allowing the redistribution of resources into the hands of parties better able to provide for consumer demands in light of entrepreneurs’ new understanding of real conditions. Emergency lending to troubled firms perpetuates the misallocation of resources and extends favoritism to firms engaged in unsustainable activities at the expense of sound firms prepared to put those resources to more appropriate uses.

This recipe of government austerity is precisely what Harding called for in his 1921 inaugural address:

We must face the grim necessity, with full knowledge that the task is to be solved, and we must proceed with a full realization that no statute enacted by man can repeal the inexorable laws of nature. Our most dangerous tendency is to expect too much of government, and at the same time do for it too little. We contemplate the immediate task of putting our public household in order. We need a rigid and yet sane economy, combined with fiscal justice, and it must be attended by individual prudence and thrift, which are so essential to this trying hour and reassuring for the future.…

The economic mechanism is intricate and its parts interdependent, and has suffered the shocks and jars incident to abnormal demands, credit inflations, and price upheavals. The normal balances have been impaired, the channels of distribution have been clogged, the relations of labor and management have been strained. We must seek the readjustment with care and courage.… All the penalties will not be light, nor evenly distributed. There is no way of making them so. There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization. I would like government to do all it can to mitigate; then, in understanding, in mutuality of interest, in concern for the common good, our tasks will be solved. No altered system will work a miracle. Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system.

“We must proceed with a full realization that no statute enacted by man can repeal the inexorable laws of nature.”

– Warren G. Harding

Harding’s inchoate understanding of what was happening to the economy and why grandiose interventionist plans would only delay recovery is an extreme rarity among 20th-century American presidents. That he has been the subject of ceaseless ridicule at the hands of historians, to the point that anyone speaking a word in his favor would be dismissed out of hand, speaks volumes about our historians’ capabilities outside of their own discipline.

The experience of 1920–1921 reinforces the contention of genuine free-market economists that government intervention is a hindrance to economic recovery. It is not in spite of the absence of fiscal and monetary stimulus that the economy recovered from the 1920–1921 depression. It is because those things were avoided that recovery came. The next time we are solemnly warned to recall the lessons of history lest our economy deteriorate still further, we ought to refer to this episode — and observe how hastily our interrogators try to change the subject.

Reprinted from The Mises Institute

Coronavirus Being Used to Scare You Away From Using Cash

Coronavirus Being Used to Scare You Away From Using Cash

Cash has been the target of the banking and financial elites for years. Now, the coronavirus pandemic is being used to frighten the masses into accepting a cashless society. That would mean the death of what’s left of our free society.

CBS NewsCNN, and other mainstream outlets are fearmongering again. Alarmism is nothing new in the media world, but this time, it’s not about triggering panic buying or even pushing a political agenda.

The war on cash is about imposing a new meta-narrative. As economist Joseph Salerno explains, the cashless society forces all payments to be made through the financial system. It doesn’t end with monopoly control over transactions, though.

Being bound to computers for transactions kicks the door wide open to hardcore surveillance of personal activity and location data. Being eternally on the grid means relentless taxation and negative interest rates, which the Federal Reserve is already gearing up for.

None of this bothers the well-heeled boosters of a cashless society or their lackeys in the media. They want Americans reading about the threat of coronavirus cooties on their cash, which is absurd.

Germs, of course, can loiter all over credit and debit cards, smartphones, ATMs, and every other cash alternative device. Too bad implanted microchip technology isn’t further along, the banksters must be thinking.

In another CNN article, readers are practically shamed for withdrawing cash to save during a crisis. Every sentence, every word, every letter of the article is nuts.

It begins by reassuring the reader that their bank account is insured by the Federal Deposit Insurance Corporation (FDIC). There’s no mention of moral hazard from CNN. The fact that the federal government guarantees every bank account up to $250,000 encourages reckless financial and banking behavior. Not worth mentioning, CNN?

Prior to the end of World War II, there were $500, $1,000, and $10,000 bills in wide circulation. This cash was dissolved by the Federal Reserve in the name of fighting organized crime. This same argument is now being made against $50 and $100 bills by Harvard economics professor Kenneth Rogoff.

In the Wall Street Journal, Rogoff also wrote that a cashless society would offer such benefits as “greater flexibility for the Federal Reserve to stimulate the economy when necessary.”

He wrote those words in 2017. And these too:

“The Federal Reserve should be able to implement negative nominal interest rates vastly more effectively in the absence of large bills, which could prove quite important as a stimulative tool in the next financial crisis.”

Prophetic. And indeed, negative interest rates would require the assistance of outlawing cash, so that banking customers don’t cheat by simply drawing out on their accounts.

Pardon the pun, but it’s absolutely sick how COVID-19 is being used now as a launching pad for this cashless agenda. There’s nothing to fear about using cash during this time of social distancing.

Wash your hands after handling cash, but don’t give up your moolah. Preserve your health, your privacy, and your liberty.

Reprinted from The Advocates for Self-Government.

The Crisis Has Exposed the Damage Done By Government Regulations

The Crisis Has Exposed the Damage Done By Government Regulations

As we watch in real-time how governments respond to the novel coronavirus pandemic, some of the most predictable forms of state overreach—from restrictions on the freedom of assembly to the suppression of regular commerce—have been rolled out. Thankfully, there is no unified world government, so there exist various examples of how certain countries are dealing with the crisis that we can closely examine and learn from.

Pessimism and cynicism are generally warranted under the political climate we’re living in. However, there are some silver linings we can take away from America’s response to the coronavirus. In a previous article, I noted that several states have started adopting deregulation on a whole host of issues. With the coronavirus still raging on, now elected officials are slowly beginning to recognize the absurdity of some of America’s regulations.

Despite how much the experts downplay people’s ability to coordinate on a voluntary basis, civil society is stepping up to face the crisis in a heroic manner. However, regulation has largely hamstrung their and state and local governments’ ability to work in a synergistic manner to stem the crisis without the federal government putting its boot on our throats. Americans have caught somewhat of a break now that some elected officials are behaving rationally by reconsidering some of America’s most misguided regulatory policies.

Several reasonable deregulation actions stand out in the last month.

FDA Loosens Up Some Restrictions, Still Has a Lot of Work to Do

The Food and Drug Administration is treated as unassailable by some, and if you dare speak out against it, you clearly want millions to die because of defective products. Well, the real world shows that the FDA’s lengthy approval process—which is consists of three phases of drug trials that can span years—actually puts many lives at risk. In the current coronavirus context, people do not have the luxury of time, so bureaucracy is quite literally killing them when they can’t access restricted treatments or medicine.

Although we’re not seeing the FDA’s budget getting trimmed or a private organization such as Underwriters Laboratories take its place anytime soon, politicians are starting to at least notice that its requirements are patently absurd in certain regards. Cooler heads have prevailed at the FDA, for the time being, as the agency gave a new coronavirus testing kit emergency use authorization (EUA) after weeks of delays.

However, we should not let the FDA completely off the hook. As is to be expected from a government agency, the FDA is taking its sweet time in approving at-home testing kits for the COVID-19 coronavirus. On a similar note, billionaire Elon Musk was able to acquire over one thousand ventilators from China and ship them off to hospitals in California along with other supplies such as respirator masks. But no entrepreneurial story is complete without its section on red tape. Musk initially hit a snag when the masks were held up at Los Angeles International Airport. Fortunately, everyone could breathe a collective sigh of relief after both customs and the FDA cleared the supplies.

Let’s not kid ourselves, though. Close calls like these could be lethal in circumstances where time constraints are even less flexible.

Texas Offers Level-Headed Deregulation Actions

Various states have issued orders to shut down restaurants and bars, which has compelled many businesses to limit their services to takeout. Some governments, such as that of Texas under Governor Greg Abbott, have been reasonable in their approach to dealing with the coronavirus crisis by lifting regulations on alcohol delivery and letting restaurants deliver alcohol along with food purchases, which was previously prohibited.

Additionally, Abbott made sure to waive regulations that would have weakened Texas supply chains in the face of this crisis. Trucks generally confined to delivering alcohol to liquor stores are now able to deliver grocery supplies to supermarkets. This move serves to bolster Texas supply chains during a time of uncertainty. “By waiving these regulations, we are streamlining the process to replenish the shelves in grocery stores across the state,” Abbott declared.

Healthcare systems across the country are under great pressure, which has prompted state legislatures to become more flexible with their otherwise stringent medical regulations. The Lone Star State has fast-tracked temporary licensing for doctors, assistants, and nurses coming from out of state to help Texas health professionals. States such as Maryland and South Carolina have taken similar approaches, recognizing that their medical restrictions may put them in a deadly bind as more coronavirus cases pop up and they don’t have enough staff to handle them. The federal government soon caught up with the states when Vice-President Mike Pence announced a new directive coming from the Department of Health and Human Services (HHS) that now lets healthcare providers treat patients across state lines.

Surprise! Some Reasonableness from the TSA

Quite possibly one of America’s most hated government agencies, the Transportation Security Administration (TSA) showed a shred of human decency by allowing travelers to have twelve-ounce bottles of hand sanitizer in their carry-ons. This well exceeds the 3.4-ounce limit that other liquids are subject to. Talk about an earth-shattering exemption. It’s almost as if the TSA’s security measures are theater at best and only make travelers’ experiences a total headache. But these days, we’ll take what we can get.

Any civil liberties–respecting person should always be skeptical about the role the government plays during a crisis. The ratchet effect is no joke, and any powers that government agencies obtain during this crisis will be maintained and likely expanded after it has subsided. To prevent such abuses of power, the case should not only be made for decentralized approaches to governance, but also for deregulation by showing how there is so much regulation on the books that private actors and civil society are kept from bringing a solution to the many problems mankind must muddle through.

Liberating these actors allows them to cooperate in a symbiotic manner with local and state entities to tackle these crises. If we just concede that the government should have total monopolies over health responses, we make centralization inevitable and let the federal government steamroll state governments, municipalities, and individuals further down the line.

The Moral Case for Deregulation

Politicians’ present-day fetish for regulation subjects hundreds of thousands of Americans to unjust criminal penalties, and further expansion of government overreach will put the country on the road to bureaucratic despotism.

This is a time when free market advocates should go beyond their mundane talking points about tax policy and start talking more about the regulations that make people’s everyday lives a hassle. Deregulation saves lives, and we should use this chance to demonstrate how free people who are allowed to cooperate can find solutions to societal problems.

Organizations such as the Competitive Enterprise Institute have already established that regulations cost the country a significant amount in economic activity—$1.9 trillion to be exact. Imagine what America’s most entrepreneurial citizens could do without those constraints. In terms of human costs, regulations can turn out to be deadly in pandemic scenarios. So we’re not just talking about numbers or abstractions here. Real, flesh-and-blood lives are on the line when we entrust the regulatory state with dominion over our activities.

The road to sound policymaking won’t be smooth, but we can only hope that the coronavirus will be the final pin that pops the regulatory balloon that politicians have recklessly inflated during their time in office. Crises do not have to automatically be associated with power grabs. Instead, they can provide opportunities for us to move forward and correct some of the errors of the past.

Reprinted from The Mises Institute

How Uncle Sam Will Spend $2.3 Trillion on Coronavirus Relief

How Uncle Sam Will Spend $2.3 Trillion on Coronavirus Relief

Before the coronavirus pandemic and the response to it triggered an economic meltdown, the U.S. federal government was planning to spend nearly $4.8 trillion in its 2020 fiscal year. Last week, President Trump signed a $2.3 trillion relief package aimed at mitigating an economic disaster.

How the government will be spending such a gargantuan sum of money via the CARES Act of 2020, and identifying who will benefit from it, are tough to visualize in a meaningful way. Hopefully, the chart below, which builds on analysis provided by the Committee for a Responsible Federal Budget, makes it easier to follow how panicky politicians have chosen to divvy up trillions of borrowed dollars in the largest aid package ever approved by the U.S. Congress.

How the U.S. Government Will Spend $2.3 Trillion for the Coronavirus Relief Package (CARES Act of 2020)

How the U.S. Government Will Spend $2.3 Trillion for the Coronavirus Relief Package (CARES Act of 2020)

Each of the boxes in the chart above contains a lot of details that will take time to unpack, but there is one main takeaway that all Americans should understand about what this spending means. Because all the $2.3 trillion being spent in this bill will be borrowed, which is coming on top of the $1+ trillion deficit the government was already going to run in FY 2020, the tax burden on Americans will be going up and government-provided benefits are going to be reduced.

Moreover, all that will happen much sooner than any politician or bureaucrat in Washington, D.C. will ever acknowledge.

As a case in point, consider that the CARES Act of 2020 was intended to prevent Americans from being laid off from their jobs because of government-mandated business closures aimed at slowing the spread of coronavirus infections. By providing loans and grants for both large and small businesses, as well as federal government-supported entities, the idea was to keep them paying Americans who have been blocked from earning incomes because of the government’s actions.

The bill provided $25 million to the Kennedy Center for the Performing Arts, which hours after President Trump signed the bill containing the provision bailing out the Kennedy Center into law, chose to lay off all the members of the National Symphony Orchestra anyway.

Kennedy Center President Deborah Rutter told the 96 musicians who make up the orchestra on Friday that their last paychecks were coming on April 3 and that they will not be paid again until the center reopens. The Kennedy Center has so far canceled performances through early May.

“This decision, from an organization with an endowment of nearly $100 million, is not only outrageous—coming after the musicians had expressed their willingness to discuss ways to accommodate the Kennedy Center during this challenging time—it is also blatantly illegal under the parties’ collective bargaining agreement,” Ed Malaga, president of the Local 161-710 of the American Federation of Musicians, slammed the move….

The payroll for the National Symphony each week is $400,000. Rutter said the $25 million would go toward “essential personnel to ensure we can reopen the Center.”

The CARES Act of 2020 also provided $260 billion in expanded unemployment insurance benefits for Americans who have been furloughed from their jobs. How likely is it that the bureaucrats of the federal government-supported Kennedy Center’s compared that line item in the spending bill to theirs and thought “we should have been given more” before deciding that since the money is all coming from the same place, they might as well provide their orchestra members the opportunity to collect unemployment benefits? They might also reason, “it’s not like they will be able to get such high paying jobs anywhere else anytime soon.”

With the federal spending spigot now fully open, will the Kennedy Center’s directors have the chutzpah to go back to Congress to demand more money to keep such high cost musicians on its payroll? If they do, will the musicians and their union change their tune and join them in supporting the effort? In the past, it has been hard for politicians to resist such joint efforts, which explains why we came into 2020 expecting to have a trillion dollar deficit.

Emergencies have a way of prioritizing what’s really important in a way that bureaucrats looking after their fiefdoms cannot. The question that must now be asked is whether Americans will be willing to pay higher taxes to pay off the money that’s been borrowed and will continue to be borrowed to support the Kennedy Center? Or might ordinary Americans look at the whole situation and ask, “What do we need a Kennedy Center for Performing Arts for in the first place?”, making it an excellent candidate for the chopping block.

Either way, it comes down to a choice between having to pay higher taxes or having fewer benefits provided by the government. The massive borrowing just unleashed by the coronavirus epidemic ensures those choices will be made.

Will Coronavirus End the Fed?

Will Coronavirus End the Fed?

September 17, 2019 was a significant day in American economic history. On that day, the New York Federal Reserve began emergency cash infusions into the repurchasing (repo) market. This is the market banks use to make short-term loans to each other. The New York Fed acted after interest rates in the repo market rose to almost 10 percent, well above the Fed’s target rate.

The New York Fed claimed its intervention was a temporary measure, but it has not stopped pumping money into the repo market since September. Also, the Federal Reserve has been expanding its balance sheet since September. Investment advisor Michael Pento called the balance sheet expansion quantitative easing (QE) “on steroids.”

I mention these interventions to show that the Fed was taking extraordinary measures to prop up the economy months before anyone in China showed the first symptoms of coronavirus.

Now the Fed is using the historic stock market downturn and the (hopefully) temporary closure of businesses in the coronavirus panic to dramatically increase its interventions in the economy. Not only has the Fed increased the amount it is pumping into the repo market, it is purchasing unlimited amounts of Treasury securities and mortgage-backed securities. This was welcome news to Congress and the president, as it came as they were working on setting up trillions of dollars in spending in coronavirus aid/economic stimulus bills.

This month the Fed announced it would start purchasing municipal bonds, thus ensuring the state and local government debt bubble will keep growing for a few more months.

The Fed has also created three new loan facilities to provide hundreds of billions of dollars in credit to businesses. Federal Reserve Chairman Jerome Powell has stated that the Fed will lend out as much as it takes to revive the economy.

The Fed is also reducing interest rates to zero. We likely already have negative real interest rates because of inflation. Negative real interest rates are a tax on savings and thus lead to a lack of private funds available for investment, giving the Fed another excuse to expand its lending activities.

The Fed’s actions may appear to mitigate some of the damage of the coronavirus panic. However, by flooding the economy with new money, expanding asset purchases, and facilitating Congress and the president’s spending sprees, the Fed is exacerbating America’s long-term economic problems.

The Federal Reserve is unlikely to end these emergency measures after the government declares it is safe to resume normal life. Consumers, businesses, and (especially) the federal government are so addicted to low interest rates, quantitative easing, and other Federal Reserve interventions that any effort by the Fed to allow rates to rise or to stop creating new money will cause a severe recession.

Eventually the Federal Reserve-created consumer, business, and government debt bubbles will explode, leading to a major crisis that will dwarf the current coronavirus shutdown. The silver lining is that this next crisis could finally demolish the Keynesian welfare-warfare state and the fiat money system.

The Federal Reserve’s unprecedented interventions in the marketplace make it more urgent than ever that Congress pass, and President Trump sign, the Audit the Fed bill. This would finally allow the American people to learn the truth about the Fed’s conduct of monetary policy. Audit the Fed is a step toward restoring health to our economic system by ending the fiat money pandemic that facilitates the welfare-warfare state and the unstable, debt-based economy.

Reprinted from the Ron Paul Institute for Peace and Prosperity.

A Dog that Didn’t Bark

Flunk the State!

Knowledgeable people (Bill Gates among them) had warned for years that governments were ill-prepared for serious pandemics. The US government was not just ill-prepared; it also maintained regulatory obstacles — in the name of public health — to others who were willing and able to act.

I’d say the case for statelessness looks better all the time.

Stimulus Bill Lets Fed Operate in Complete Secrecy

Stimulus Bill Lets Fed Operate in Complete Secrecy

I guess we’re just supposed to have faith that Jerome Powell will do the right thing. I don’t know about you, but I don’t have that kind of faith in anybody when it comes to passing out billions of dollars in cash or creating government policy.

-Mike Maharrey, TAC

Last week, Congress passed a $2 trillion stimulus bill in an effort to offset the economic impacts of the coronavirus. Most people have focused on the $1,200 checks to Americans and bailouts for industries hard-hit by the economic shutdown.

But the 883-page bill does a lot more than that, including empowering the central bankers at the Federal Reserve to hand out billions of dollars to their Wall Street buddies in complete secrecy.

The stimulus bill authorizes the Fed to create $454 billion out of thin air and loan it out. The provision gives the central bankers complete autonomy when it comes to deciding who gets the money.

Not more than the sum of $454,000,000,000…shall be available to make loans and loan guarantees to, and other investments in, programs or facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system….”

The money will allow the Federal Reserve to create what are known as special purpose vehicles (SPVs). An article in CounterPunch explains that an SPV was the same device used by Enron to hide its toxic debt off its balance sheet before it went belly up.

With the taxpayers’ money taking a 10 percent stake in the various Wall Street bailout programs offered by the Fed, structured as SPVs, the Fed can keep these dark pools off its balance sheet while levering them up 10-fold.”

During the 2008 financial crisis, the Fed used SPVs to buy toxic debt from Bear Stearns to facilitate its takeover by JPMorgan Chase and to prop up AIG.

In other words, they are a vehicle for federally-backed corporate bailouts.

The Federal Reserve has already established an SPV in response to the coronavirus meltdown. On March 17, the Fed announced the creation of a Commercial Paper Funding Facility (CPFF) “to support the flow of credit to households and businesses.”

The Treasury will provide $10 billion of credit protection to the Federal Reserve in connection with the CPFF from the Treasury’s Exchange Stabilization Fund (ESF). The Federal Reserve will then provide financing to the SPV under the CPFF. Its loans will be secured by all of the assets of the SPV.”

One could argue that the Fed needs the power to create establish these programs in the midst of a major financial crisis. But does it need to do so in complete secrecy?

A provision of the stimulus bill throws a big shroud over the activities of the central bank. The bill repeals the sunshine law as it relates to Federal Reserve board of governors’ meetings until the end of 2020 or when the president determines the coronavirus crisis has passed, whichever comes first.

SEC. 4009. TEMPORARY GOVERNMENT IN THE SUNSHINE ACT RELIEF. (a) IN GENERAL.—Except as provided in subsection 8 (b), notwithstanding any other provision of law, if the Chairman of the Board of Governors of the Federal Reserve System determines, in writing, that unusual and exigent circumstances exist, the Board may conduct meetings without regard to the requirements of section 552b of title 5, United States Code, during the period beginning on the date of enactment of this Act and ending on the earlier of— (1) the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 20 U.S.C. 1601 et seq.) terminates; or (2) December 31, 2020.”

In other words, Jerome Powell doesn’t have to let you know what the Fed is doing. All he has to do is assert “exigent circumstances” and a veil of secrecy descends over the central bank.

Practically speaking, the new law effectively empowers the Fed to hand out money to whomever it pleases and nobody will ever be able to find out the whos, hows and whys.

I guess we’re just supposed to have faith that Jerome Powell will do the right thing.

I don’t know about you, but I don’t have that kind of faith in anybody when it comes to passing out billions of dollars in cash or creating government policy.

This looks like a recipe for cronyism and corruption on a massive scale. Even is you accept the veracity of central bank bailouts of Wall Street, it’s difficult to understand the benefit of doing so in secret.

Whenever civil libertarians complain about government surveillance, the response is always, “If you have nothing to hide, you have nothing to fear.” So, what is the Fed hiding? And what does it fear?

A Dog that Didn’t Bark

No Case for Closed Borders

Anyone who thinks the coronavirus pandemic destroys the case for open borders hasn’t thought the matter through terribly far. Bryan Caplan explains here. Just to give a taste, in the name of excluding viruses from our shores, the government would have to stop immigration even when no pandemic was in progress since pandemics can’t be counted on to announce themselves in advance. Moreover, tourism, commercial visits, and trade would have to be abolished too. And — yikes! — so would American travel abroad unless Americans were willing to leave home and never return.

One last thing: since we have nothing even close to open borders, Caplan writes, “How much protection have 98% closed borders given us against the pandemic?  The answer: Virtually none…. The sad fact is that even very low absolute levels of international contact have been more than sufficient to spread infection almost everywhere on Earth. The marginal cost of higher levels of contact is therefore minimal.”

Liberty is a necessity, not a luxury — even during serious pandemics.

Without A Bottom Line, Government Is Not Only Blind – It Is Destructive

Without A Bottom Line, Government Is Not Only Blind – It Is Destructive

In the present pandemic panic, a great many are calling for bigger, stronger, and more brutal government to deal with the coronavirus. Thus, they cheer as the political decision-makers, never wanting to let a good crisis go to waste, scurry to get themselves ‘emergency powers’. 

A common assumption among both common people, the intelligentsia, and members of the political class appears to be that the market either has failed or that it simply cannot deal with problems like pandemics. While both are ignorant and false claims, what is much more disturbing is the fundamental lack of understanding for economic organization that they indicate. 

The business world 

In any rapid change, businesses struggle to the degree they are ill prepared or lack agility. If you were locked in to produce horse carriages when Henry Ford started mass production of the Model T, or flip phones when Apple launched the first iPhone, you were in trouble. There is, from a business perspective, no difference whatsoever between a sudden shift in what consumers want and a pandemic. Yes, that’s right: there is no difference.

The reason is simple: businesses make money from providing what there is demand for and having produced it at lower cost than the price they can charge. What we’re seeing during this coronavirus panic, with for example alcohol producers shifting to hand sanitizers, is not an unexpected altruistic turn by business that some make it out to be. Yes, many businesses are gifting the goods for now. But the greater point is that the firms exercise good entrepreneurship and business management by adapting to the new situation to produce what there is greater demand for.

What is important here is that they are able to do so by calculating the expected bottom line. Whether or not liquor sales plummet, there is value in shifting some of that production to hand sanitizers. But how much? That depends on what the business can afford (when gifting the products) and what the expected sales is (when not). The fact is that there is money to be made from goods that consumers more urgently demand—be it hand sanitizers or automobiles or smartphones. And businesses are ultimately assessed by their bottom line. If they do not earn profits, they will (eventually) die.

The government world 

While a CEO of a business is evaluated using a number of measures, the company’s bottom line—its profitability in the present and future—is first among them. But government is altogether different: there is no bottom line and no way of measuring actual performance. 

For political leaders, there is only reelection or not. Their chances of remaining in office depend on their perceived track record, which will partly be determined by what issues are raised by competitors’ election campaigns and what is given attention in the media. There is no objective measures of their entire legacy and there is also no one metric that summarizes it. Opponents will point to anything that didn’t (or can be made out to not) end up well as a failure of leadership. 

During a crisis situation, therefore, political leadership can be blamed for doing too little but not for doing too much. If they do too little, it is easily pointed out as a failure of leadership. If they do too much, then there is no way of knowing that it was indeed too much—because the only available ‘metric’ is the outcome.

Compare to a CEO of a business firm: doing too little is appropriately recognized as poor leadership and reflected in the bottom line as a lower return than other businesses—and perhaps a loss and perhaps falling market share. If they do too much, they’ve accepted too high cost. The bottom line reflects this fact too, with the firm earning a comparatively low ROI or suffering a loss. 

Not so for politics, in which there is no reasonable metric—and also no comparison. In this pandemic, for example, the real cost of adopting ‘emergency’ measures cannot be measured as it is passed on to society overall and borne by everyone in it. The real cost could not be known for many years, if at all, and there is nothing to compare to as government is a monopoly. What can be known is whether the outcome is good or not.

The bottom line

As a result, while business leaders are evaluated by how prudently and effectively they direct the firm, political leaders worry only about doing too little. There is no upper bound to what they might try during a crisis. What limits the scope of what policies might be tried is primarily their personal conviction—their ethics. But they also realize that being ‘too ethical’, meaning ‘not doing enough’, might make their reelection impossible. 

It does not matter how good-hearted or prudent political leaders might be, the incentive is always to do more—not to prudently respond to facts of the situation. In a situation of widespread fear, such as this pandemic, political leaders who do not meet people’s emotional demand will face an extremely difficult reelection campaign and they might even be forced to resign. 

Politicians are consequently better off to do much more than needed. And they are also better off focusing on such measures that people directly observe or feel, whether or not they are effective. We thus see politicians acting swiftly and forcefully, as is in their interest. It is also what people call for them to do. 

The prudent decision-making, a.k.a. good leadership, that we need in crises much more than under normal circumstances, is quickly dismissed. And we will never know exactly how much ends up being destroyed as a result.

Capitalism Makes No Sense

Capitalism Makes No Sense

Few things are so confusing as the term capitalism. The definition itself appears clear enough, with the Oxford Dictionaries saying it is “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.” Both proponents and opponents of capitalism would likely agree that the core of capitalism is the private ownership of the means of production. But that’s the full extent of agreement.

The problem here is that the formal definition provides no guidance regarding the functioning of the system. This means proponents will see what they want to see, while opponents tend to see other things entirely. This explains Gary Chartier’s three senses of capitalism. From his chapter in Markets Not Capitalism (p. 108):

  1. an economic system that features personal property rights and voluntary exchanges of goods and services 
  2. an economic system that features a symbiotic relationship between big business and government 
  3. rule – of workplaces, society, and (if there is one) the state – by capitalists (that is, by a relatively small number of people who control investable wealth and the means of production)

All three are indeed possible outcomes of the same definition, even though they are not only different but may even seem contradictory. For example, it is difficult to reconcile the personal property and voluntary exchanges in the first ‘sense’ with the considerable presence of government and corporatism in the second ‘sense’. Similarly, the autonomy and freedom in the first ‘sense’ seems incompatible with the rule suggested by the third ‘sense’. 

In terms of advocacy, then, the term capitalism is, simply put, worthless. What is actually meant by someone invoking the term capitalism depends entirely on their other views—philosophical, political, and economic. Those views, in turn, affect how we see the world and what aspects of it we choose to focus on. 

It is therefore not a contradiction that someone on the right can refer to the present ‘free enterprise’ system in the United States as ‘capitalism’ and mean the prevalence of business and competition while someone on the left instead sees corporations dictating politics and government. The former assumes, based on their philosophical, political, and economic views, that business does good and that government is a ‘necessary evil’. The latter assumes, in contrast, that government is a potential force for good that has been corrupted by the wealthy, who want to continue to profit at most people’s expense. Both would agree that the system is capitalism, but what they see as that system is very different.

This is of course enormously frustrating (for both sides) because it is impossible to communicate and even less agree on how to improve the system (not to mention how it actually works!). So what should be a constructive discussion about goals, means, and strategies typically ends up a shouting match and calling each other evil know-nothings. While this might give you pats on the back from your own choir, you’ve really only dug a deeper trench. 

The only party that gains from these shouting matches is the common enemy: the forces that feed off and cause the bads of the present system. 

Typically, radicals in favor of capitalism (in the first ‘sense’) take that position because they have a passion for justice and understand markets as both the means for and manifestation of a free society. Similarly, radicals opposed to capitalism (in the third ‘sense’) take that position because they oppose the rule and power that are anathema to a free society. The fact is that many should be able to take both positions were they to consider the substance first and the label second (or not at all). 

As libertarians, we certainly hate the state. But it is not a random position. We hate the state because it is institutionalized aggression. The state provides some with power and rule while subjugating the rest of us. There is nothing voluntary or free or good about the state, and it does not create anything of value. Its very existence flies in the face of the principle of every person’s equal right and freedom. 

Without the state, there would be no capitalism in the second and third senses. What is left is the freed market: society in the form of horizontal cooperation through production under the division of labor, trade and exchange, and solidarity and mutual aid. The goal, in the words of Pierre-Joseph Proudhon, is “the dissolution of government in the economic organism.” That is, capitalism in the first sense.

Reaching that goal is difficult as it is, we do not need to place additional obstacles in our path. One such is the hang-up on a word, the debating of which wastes precious time and effort on inconsequential matters. It also means we lose potential alliances with those who have compatible goals in substance, but have similar hang-ups on that word. The term capitalism is a barrier, not a bridge. 

A Dog that Didn’t Bark

An Approach to Collective Problems

Libertarian political philosophy, as a practical matter, does not offer a prefabricated set of solutions to collective problems. Rather, it’s a liberty-based approach to ameliorating collective problems that begins by acknowledging (among other things) the dispersion, incompleteness, and tacit dimension of relevant knowledge. Thus, the approach favors decentralization, competition (in ideas and services), and choice about what trade-offs to make and with whom to cooperate. Perhaps ironically, to succeed, individualism requires and produces the collective intelligence that only markets embody.

Panic Buying, Medical Rationing Underscore Importance of Free Markets

Panic Buying, Medical Rationing Underscore Importance of Free Markets

The recent coronavirus panic has provided a stark reminder about the scarcity of economic goods. From people hoarding and stockpiling common household items like toilet paper and hand sanitizer to the downright morbid reports of doctors in Italy and Spain having to pick and choose who should receive medical care, the issue of resource scarcity has been thrust front and center.

To be clear, when economists refer to scarcity, it doesn’t just refer to empty shelves or a general lack of supply of something. Instead, we mean that goods are objects of choice: its use for one purpose or user precludes it from use for another purpose or user.

A bottle of hand sanitizer is scarce because when one person uses it for his hands, it is not available for another person’s use. Ventilators and hospital beds are also scarce; if Jane is using a bed and ventilator, it is not available for John’s use.

This leads us to conclude a key economic truth: all goods must be rationed. How a society overcomes this issue of scarcity and the method of rationing scarce goods determines that society’s well-being and standard of living.

 When the method of rationing facilitates efficient allocation of resources toward society’s most urgent needs, while encouraging productive behavior, the economy will flourish. If an inefficient means of resource allocation is used, poverty and shortages follow. 

Moreover, the issue of scarcity gives rise to the dilemma of multiple people desiring to lay claim to the same resource. Therefore, the method by which scarce goods are allocated will determine how people compete to obtain that good. 

So, what are some methods by which scarce goods are allocated, and what does the current crisis reveal about each one?

First come, first served: Under this method, whoever is first to claim or physically obtain the good gets to keep it. Time becomes a currency of sorts in this method, as those willing to forego other uses of their time in order to be among the first in line will be rewarded. It may also involve a little luck as well, with those who happen to be closest to some valuable good having the greatest ease of getting to it first. 

We’ve witnessed this method emerge with the panic buying of toilet paper and hand sanitizer because prices have not been not allowed to adjust due to anti-price gouging laws. Those willing and able to get to the front of the line clear out the shelves, leaving nothing for everyone else. 

When freely adjusting prices aren’t allowed to work, and instead a method of first come, first served emerges, the cost to consumers is time. Those willing to pay the highest cost in terms of time (i.e. spend hours waiting for a store to open so they are first in line) acquire the most goods.

Unfortunately, this method does not allow prices to reflect relative demand and scarcity, preventing valuable signals to guide producers to direct goods where they are most urgently needed.  And this method does not encourage productive behavior, as those consumers who spend more time waiting in lines rather than working are rewarded.

Critics claim that allowing prices to rise rapidly during emergencies may price some completely out of the market for a much-needed product during a time of distress. But empty shelves created by shortages also force many to go without. And the only way to bring prices back down without causing shortages and heavy time costs on consumers (via long lines) is to allow for prices to signal to producers to direct current supplies to where they are in most short supply, and incentivize them to produce more of the good in question. Freely adjusting prices can rapidly enable supply to surge and meet demand, and bring prices back down.  

An authority distributes goods based on “need”: Under this method an authority figure decides who gets what, by determining who is in most desperate need. Concentrating so much power over scarce goods into the hands of a single person or committee invites corruption. As such, people are incentivized to bribe or threaten the decision-makers to obtain what they desire. Lobbying becomes more rewarding than investments in productivity.

Moreover, attempting to distribute by “need” subjects distribution to the arbitrary definition of “need” by the authority figure. Potential consumers are incentivized to remain “needy” according to the definition of the authorities in order to gain access to goods and services. Think of the poverty trap created by the welfare state.

This also gives rise to the rationing of medical care we’ve seen emerge in countries like Italy and Spain, where the authorities are determining that young people are more worthy of scarce medical care during the coronavirus pandemic than older people who have fewer quality years of life left. 

This method also removes crucial price signals that would both incentivize increased production of those goods and services in most urgent demand, and the distribution of these goods to where they are most urgently needed. The costs can be fatal.

People have little incentive to be productive out of fear of losing access to goods and services because the authority may not deem them “needy” enough. 

Neither of those options seems like a particularly efficient (or fair) means by which to allocate scarce resources. Which brings us to:

Exchange of private property with freely adjusting prices: Private property implies that goods have an owner, and that owner is the one with just and legal authority to determine how that good is used. The owner can consume it, use it for productive purposes, stockpile it or trade it. One acquires rights over (already owned) property thru voluntary exchange, whether those exchanges involve goods for goods, goods for money, or money for labor.

Under such a system, in order to compete for desired goods, one must offer something of value in exchange, unlike the other previously mentioned methods. This incentivizes greater productivity – the key to improving the standard of living for a society.

Furthermore, not only does this system create a greater abundance of goods and services desired by society, but it more efficiently allocates them to their most urgent uses. 

Price signals provide valuable information and incentives to market participants. High prices of relatively scarce goods incentivize consumers to economize on the more expensive goods, while also encouraging producers to create more of that good in pursuit of higher revenue and profits. Shortages vanish.

Low prices encourage consumers to buy more, while telling producers that their productive resources are more urgently needed elsewhere. Surpluses are eliminated. 

The method society chooses for how scarce resources are allocated will generate very different types of behavior, and results.

The coronavirus panic has revealed that when government interferes with market prices and the exchange of private property, other means of distribution will emerge. These other methods, however, are far less efficient and more unfair. 

A system based on private property rights and free exchange based on freely adjusting prices provides the framework for the most efficient and fair allocation of scarce resources, while also encouraging more productive activity. The result is a more prosperous society, one far better equipped to meet society’s most urgent needs, especially so during times of emergency.

 

Bradley Thomas is creator of the website Erasethestate.com and is a libertarian activist who enjoys researching and writing on the freedom philosophy and Austrian economics.

Follow him on twitter: Bradley Thomas @erasestate

 

 

TGIF: Libertarianism in Emergencies

TGIF: Libertarianism in Emergencies

Libertarians have always acknowledged that emergencies — severe extraordinary conditions of limited duration — can justify actions that would be unacceptable under normal circumstances. This doesn’t mean that all the rights-based rules disappear, only that some measures are deemed permissible that otherwise would be beyond the pale. Danger, however, lurks in this principle, requiring eternal vigilance.

For example, if someone collapses unconscious in the street, you may do things intended to help him without his consent. This does not justify a general policy of paternalism. Another common hypothetical is that of the person caught in a life-threatening blizzard in the wilderness who happens on a cabin (which, let us say for simplicity’s sake, is unoccupied at the time). To save his life, the stranger breaks in, builds a fire, and eats the food. No reasonable person would fault him for not first seeking permission of the owner. What happens after the emergency passes is an interesting topic for discussion — should he offer compensation? should the property owner demand and accept it? — but let’s not get into that now. (Yes, the hypothetical could be made far more complicated than mine, but that’s also for another time.) Yet this cannot justify the abolition of property rights.

We might call those situations micro emergencies. They affect one individual or a few, while other people may experience nothing extraordinary at all. So what about a macro — society-wide or global — emergency — a widespread epidemic, let’s say? I can’t see why the principle of emergencies would not hold. The aim of ethics (politics being a subset) is human flourishing, not blind slavishness to duty.

Unfortunately this might mean that in today’s world — where a dangerous communicable disease threatens to overwhelm the medical system — governments would reasonably have freer rein to do things than they have in normal times. Most people would expect that to be the case and, moreover, would want it that way. I say unfortunately not only for reasons obvious to libertarians but also because the existence of the state has over a long period impeded and even forbidden the gradual spontaneous emergence of alternative, protean, voluntary public-health and mutual-aid institutions that would be better suited to responding to pandemics (and other disasters) than the centralized collection of politicians and bureaucrats we call the state. To see the point, you need only meditate on the leading government public-health agencies’ prolonged botching of the matter of coronavirus testing. (Although it’s been stretched nearly beyond recognition for obvious public-choice reasons, public health is a legitimate concept in light of the existence of serious communicable diseases.)

That we must regretfully do without those alternative institutions in the present emergency (although not entirely) should teach everyone a lesson for the future. But what can we do now? A libertarian who says he would “push the button” and at once abolish the state (or in the case of a limited-government libertarian, merely eliminate the welfare state) has little of value to say today. Does he think that alternative voluntary institutions would spring into existence? Institutions — and the constellation of customs and expectations they embody — need time to grow. I’m not saying that people working together consensually wouldn’t do much good on their own in the meantime — they are doing so now — but the limits in the short term would be significant.

Besides, no such button exists, so why would we even talk about it? A radical scaling back of the state at this time would not find widespread support, so even if it could be pulled off, it would quickly be reversed because, like it or not, most people regard the (welfare) state as legitimate, even if they have objections to various parts of it.

So we’re stuck with the state as it is in this emergency. Where does that leave us? Some restrictions on normal activities will be regarded as reasonable, targeted quarantines, for example. That doesn’t mean we should suspend judgment and accept every restriction the politicians or bureaucrats come up with. (What’s with the curfew? Where’s the necessary connection with banning gatherings?) An emergency is no time to abandon one’s critical faculties. Nevertheless, things that would and should be condemned in normal times will reasonably be deemed acceptable — with regrets — even by libertarians for the duration of the emergency. Exactly what all those things might be I’m in no position to say with any confidence. A reasonable restriction could certainly be pushed too far. How far is too far? It’s not always clear, although we’ll often know it when we see it. We will be in an improvisational mode for some time to come — which is why decentralization, competition, and openness to information from far and wide should be the rule of the day. (See this.)

Of course, libertarians have a critical public role at this time. First, we should never cease to point out that much of what the government has done to mitigate the COVID-19 pandemic has been in the nature of suspending restrictions on private conduct essential to responding in this emergency. The loosening of restrictions regarding trade, medical practice (including testing and tele-medicine), vaccine development, occupational licensing, and more demonstrates how routine and commonly accepted government activity has dangerously hampered the private sector’s ability to anticipate and react to the pandemic. (Unfortunately restrictions on the price system, specifically, anti-price-gouging laws, are still in force. Trump has reinforced this.) When this is all over we must not let society forget how government stood in the way. What grounds could possibly exist for reinstating those restrictions that threatened our lives during the pandemic? They and others should be permanently repealed.

Second, we ought to be showing people that markets work in emergencies and that we need them more than ever. When hand sanitizer (which was not in common use a few decades ago) ran short, distilleries started making it. Hanes turned from making underwear to making masks. I’m sure other examples could be found. What if the whiskey and underwear industries had been shut down as nonessential? No bureaucrat can know all of the “nonessential” production required to support “essential” production. F. A. Hayek’s insights about the market solution to the ubiquitous “knowledge problem” are more important than ever.

Our very lives depend on entrepreneurship, which is alertness to overlooked opportunities to improve people’s well-being by transforming scarce resources from a less-valued to a more-valued form. Profit is not the only thing that motivates entrepreneurship, particularly in emergencies, but we must not discount its vital role. Thus “people before profits” is a false dichotomy that has devastating consequences, especially for the most vulnerable. (Profits from rent-seeking, that is, government favoritism, is what we should condemn.) When markets are free, serving others is profitable. Thus Trump should not use the Defense Production Act to command manufacturing. The price system is a faithful guide to action that helps others. Let it work. A corollary: globalization, the kind that is unguided by governments, is good and is saving lives now. The welfare-enhancing division of labor is limited by the extent of the market, Adam Smith wrote.

Besides suppression of the coronavirus we need the production of wealth, but only savings and investment through markets can produce new wealth for everyone (as opposed to special interests only). Government produces only the illusion of wealth by conjuring up apparent purchasing power through money creation — raising the price of what’s already been produced — and moving existing resources around — inevitably creating fertile ground for cronyism, pork-barrelism, and electioneering — while consuming a large share in the process. Everyone will pay a huge price for the government’s promiscuous fiscal and monetary “stimulus” — which could conceivably be far worse than the coronavirus.

To state the obvious, we must find the best balance of mitigation of the spread of the virus and economic activity, which itself is required to conquer the disease. We have no grounds for confidence that politicians and bureaucrats can find this balance. Decentralization, with many information-generating centers, is indispensable. And let’s not forget that “the vulnerable” include not only the medically vulnerable but also the economically vulnerable. (Also see this.)

Unfortunately, American governments have shut down much market activity. (Strangely, “socialist” Sweden has not shuttered businesses and prohibited gatherings.) So what can we do now? I’m persuaded that mass testing would pave the way for the resumption of more or less normal market activities, for it would identify those who have the virus antibodies and thus constitute no danger to others. (See this and this.)

Third, advocates of liberty and respect for people should demand that the U.S. government end all economic sanctions against other countries. In normal times, economic warfare is crueler than cruel since it deprives blameless people — not rulers — of food, medicines, and other necessities. Can you imagine what sanctions are doing now?

Fourth, libertarians should demand that any government emergency spending ought to come first from the so-called national-security budget, which, if you count everything, comes to over a trillion dollars a year. Liquidating the empire should be the order of the day. It’s always been bad for Americans’ and other people’s health.

Fifth, we libertarians must teach our fellow men and women about what Robert Higgs has named the “ratchet effect.” This is the well-documented phenomenon that extraordinary, intrusive government measures adopted during a crisis do not go away entirely once the crisis ends. (For details, see Higgs’s classic, Crisis and Leviathan: Critic Episodes in the Growth of American Government.) We can’t let the extraordinary become ordinary.

Sixth and related, libertarians must help people to understand that measures adopted during a bona fide emergency are unacceptable in other circumstances. Politicians and bureaucrats might enjoy their expanded powers in a crisis and so might try to invoke them under more typical conditions — but we cannot let the bar be lowered.

We must not let our society come to see restrictions on individual liberty as the new normal. This is an emergency, and we must not forget it.

 

News Roundup

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