Noam Chomsky’s latest offering—a series of interviews—presents the best (and worst) of one of America’s premier public intellectuals.
Original Article: “There’s No Place like Noam”
Kimberlé Crenshaw, one of the founders of Critical Race Theory, recently decried what she called the “war on wokeness” (by which she seems to mean, a war on CRT). According to her, this “war on wokeness” is “the road to an authoritarian state that’s paved through the history of white supremacy.”
It’s true that the “war on wokeness” has taken on authoritarian overtones of late. Many Republicans are rejecting the ideas of pluralism and free speech that underpin the American ideal and pushing through broad laws aimed at banning the teachings of CRT. In their desire to stop “wokeness” these laws often muzzle dissenters, and are so broadly written that they can throw the baby out with the bathwater. Free speech advocates have roundly condemned these laws and for good reason.
But it’s also true that Critical Race Theory has serious problems. You don’t have to be a “white supremacist” or be trying to promote an “authoritarian state” to be skeptical of CRT.
First, prominent Critical Race Theorists (“Crits” as they call themselves) lean hard into race essentialism. In Is Everyone Really Equal?, Özlem Sensoy and Robin DiAngelo (of White Fragility fame) lay out some quotations that they disagree with. One such quotation is, “People should be judged by what they do, not the color of their skin.” DiAngelo and Sensoy dismiss this idea as “predictable, simplistic, and misinformed.”
It’s tough to overstate how inimical this concept is to modern-day American values. Martin Luther King Jr. famously proclaimed, “I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.” For DiAngelo and Sensoy, this dream is “misinformed.”
In another section, DiAngelo and Sensoy list traits (allegedly) held by members of the “dominant group” in society (white people, straight people, men, etc) and contrast them with traits they claim are held by members of “minoritized groups” (black people, LGBTQ folks, women, etc). Traits held by the dominant group include “presumptuous, does not listen, interrupts, raises voice, bullies, threatens violence, becomes violent.”
Traits held by the minority group include “feels inappropriate, awkward, doesn’t trust perception…finds it difficult to speak up, timid.” For DiAngelo and Sensoy, members of the majority group are angry bullies who don’t care about anyone except themselves; and minorities are timid children who can’t speak up or look after themselves. Is it any wonder that many minorities find this kind of rhetoric offensive?
A second reason to oppose CRT is that many Crits don’t admit that society can ever really get better. In Critical Race Theory: An Introduction, Richard Delgado (another founder of CRT) and Jean Stefancic argue that American race relations don’t improve. They call many of the civil rights gains of the 1950s and 1960s–including Brown v Board, the landmark Supreme Court case that desegregated schools across the country–”shams.” According to the authors, these gains are merely “hollow pronouncements issued with great solemnity and fanfare, only to be silently ignored, cut back, or withdrawn when the celebrations die down.”
For Delgado and Stefancic, meaningful social change is almost impossible. Unless all of society changes at once, “change is swallowed up by the remaining elements, so that we remain roughly as we were before.” This is an ideology that has little room for the gains of the Civil Rights Movement or the dramatic decrease in bigotry in the 60 years since. A foundational American story is that our society is imperfect but is getting better, but CRT only has room for the first half of that statement.
Finally, Critical Race Theory is explicitly opposed to the Enlightenment ideals upon which America was founded. DiAngelo and Sensoy say that CRT initially advocated “a type of liberal humanism (individualism, freedom, and peace)” but stress that it “quickly turned to a rejection of liberal humanism.” Values such as freedom and individualism are, apparently, not particularly welcome in Crit circles.
According to Delgado and Stefancic, “Critical Race Theory questions the very foundations of the liberal order.” CRT is opposed to “equality theory, legal reasoning, Enlightenment rationalism, and neutral principles of constitutional law.” If you want the law to treat people equally regardless of their immutable characteristics (ex. race, gender) then, by their founders’ own admission, CRT is not for you.
Critical Race Theory isn’t all bad, and there are concepts like intersectionality that can help us to recognize the struggles and advantages of people who don’t look like us. But the field has deep problems, and more and more Americans of all ethnicities are picking up on this. Maligning critics as “white supremacists” is unlikely to fix those problems.
Like many creative educational options, Sweetwater Scholé is evidence that necessity is the mother of invention. Despite a career working to advance educational freedom and school choice, Randan Steinhauser’s original education plan for her children was pretty typical. “When it came time for my husband and I to buy a house, the first thing we looked at was the local school district,” she recalls. “I grew up in public school. My husband did, too. So, I’m fighting for school choice for other families. But I never thought of it for myself.”
When her oldest daughter was one, Randan had twins. She sent her daughter to a part‐time preschool to give herself a bit of a break. She was shocked when the teacher said her daughter was doing well but should be attending five days a week—as a two-year-old—to get kindergarten ready. Randan says that was a moment of clarity. She pulled her from the preschool, which for them was meant to be a fun outlet and a break for Mom. “That really led me on a journey to start to educate myself on what my choices were,” she says. “It was like a light bulb went off. No one knows my child better than I do, and I want to be a part of that educational journey for them. I started researching home education and fell in love with everything I was reading. I fell in love with the wild and free unschooling, all of this education by choice, not by coercion and child‐led learning. And that led us to where we are now.”
Fast forward a few years. Randan now has four children and decided to take a year off work when her youngest was born. That gave her more free time, so she decided to start a homeschool co‐op that she calls Sweetwater Scholé. Inspired by Charlotte Mason, the co‐op is designed around hands‐on and creative learning. Children are introduced to an idea or concept and then use nature‐based play, books, art, poetry, music, and conversation to explore it.
Sweetwater Scholé just wrapped up its first year in operation. There were more than 50 families involved, with around half of those attending on a weekly basis. “My goal was to have maybe a dozen kids. I thought it would be super quaint and intimate,” says Randan. “When we finished our school year—we did 10 weeks in the fall and 10 weeks in the spring—we ended up with 49 kids who consistently came, representing over 20 families.”
Randan notes the co‐op has a wide range of diversity including various religions, ethnicities, homeschooling styles, and ages. But they’re united around a desire to see their children thrive in a learning environment that puts them at the center. Many families joined who had pulled their kids from public school for a variety of reasons, including to have more time together, foster a love of learning, escape bullying, avoid wasted time, and allow their children to learn at their own pace.
As Randan has gone back to work, other moms have pitched in. This spring, a different mom took the lead each week—one focused on space, one did oceans, one did weather, and so on. The group will continue to meet for free play over the summer with no lessons planned. “For the fall, I have some moms who want to continue to step up and lead,” Randan says. “The other cool thing about this is that as our group got so big—there were families driving to our co‐op from 30–40 minutes away—I really started to cultivate those moms. I said ‘Hey, just take the leap. Put something out on your neighborhood page. Put something out in your local community.’ So from our co‐op, we now have two new co‐ops. Our little babies.”
Randan is very reflective about her experiences. For years, she worked to advance education freedom for children with special needs and lower income families, but she hadn’t thought of it in terms of her own family. “It really weighs on me that I was oftentimes talking about how other families should have choice or other families should have freedom. And it was only when I started to evaluate our own children’s education that I realized we, too, should be able to have that freedom. And that is really what has led me personally into being an advocate for universal education freedom.”
I’ve written before about the set of state constitutional amendments known as “Marsy’s Law,” promoted as a bill of rights for crime victims. While the details vary from state to state, common provisions found in the package can deprive persons accused of crimes of information that is of legitimate use in mounting their defense, seal off access to information about crime that the public has valid reasons to want to know, and even in some states work to suppress the identities of police who shoot civilians, so long as the officers allege that they were themselves victimized as part of the episode. In an unsettling paradox, the laws bestow valuable rights on persons it designates as crime victims before any legal process determines whether a crime has in fact been committed against them and if so by whom.
Critics have gone to court to challenge Marsy’s Law enactments, with at best spotty success. Wisconsin’s high court has now upheld the law against one such challenge. It ruled that the package did not violate the state’s “single‐subject” rule for constitutional amendments presented as ballot measures; high courts in Pennsylvania and Montana had struck down their state’s enactments on that ground, but application of single‐subject rules is anything but predictable. And it ruled that the language presented to voters was not improperly misleading, though it could easily have left voters with the impression that the existing rights of criminal defendants would be left untouched (they weren’t).
I wrote a piece for the Brennan Center this spring about the Wisconsin challenge and another in Florida. An excerpt:
Marsy’s Law proponents regularly argue that the laws don’t weaken the rights of criminal defendants. But there’s little doubt that the Wisconsin package does exactly that. For example, it “limits discovery available to defendants by allowing victims [t]o refuse an interview, deposition, or other discovery request,” argues a brief from the ACLU of Wisconsin. A brief from public defenders says it’s “common for documents to be more heavily redacted or not disclosed in the name of ‘Marsy’s Law’” and that “the accused’s diminished discovery rights have been narrowed further with the amendment.”
In addition, the ACLU argues, a provision granting victims the right to attend all proceedings does so by deleting a previous qualifying phrase recognizing their right to attend “unless the trial court finds sequestration is necessary to a fair trial for the defendant.”
In the Florida case, which has not yet been ruled on, a police union sued to prevent the city of Tallahassee from releasing the names of two officers involved in fatal shootings, citing the law’s ban on disclosure of “information or records that could be used to locate or harass the victim or the victim’s family,” victim status in this case being asserted on behalf of the officers. Florida’s state constitution contains a celebrated “sunshine” provision guaranteeing the public access to a wide range of official records, but an intermediate appeals court ruled that voters’ approval of the Marsy’s Law package implicitly rolled back the public’s previously established sunshine rights.
Whatever the outcome of the Wisconsin and Florida challenges, I argue in the Brennan piece, “advocates and policymakers should be on notice that Marsy’s Law generates outcomes that are hard to defend in principle.”
Per Bylund joins Bob to discuss his new paper at the QJAE, which points out several flaws in the MMT claim that money is valued in order to pay taxes.
Per’s QJAE article: Mises.org/HAP398a
The eminent economist Edmund Phelps is a “liberal” in the modern sense, not a libertarian, but in his recent book My Journeys in Economic Theory (Columbia University Press, 2023), he makes a number of points that those of us who are libertarians will find useful.
Opponents of rights-based libertarianism like Andrew Koppelman in his book Burning Down the House say that without government welfare programs, the poor would perish. This outcome is fine with libertarians, Koppelman thinks. Those who can’t take care of themselves deserve to die. Supporters of the free market respond, however, that private charity would not be lacking in a free society.
Phelps points out that people voluntarily donate substantial amounts of money to charity:
Standard economic theories fail to account adequately for the gift-giving, donations, and philanthropic investing that people occasionally do with the money that comes from their income and capital gains after meeting their needs to spend and save, as well as with the time they have, after meeting their needs to work. This phenomenon became increasingly widespread as more and more people had money and time to spare. In fact, people from mid-nineteenth century to the mid-twentieth century could increasingly afford to exercise altruism and display ethical standards to the extent they had these qualities—more so the greater time and money they had for these acts.
Some people may object to the word “altruism,” thinking that this calls for sacrifice of one’s own well-being for others, but this isn’t what Phelps has in mind. His point is that people’s preferences often include desires to help others. If that is true, helping them does not go against their own well-being.
As I mentioned, Phelps doesn’t favor the unhampered market, but he raises some useful cautions about some popular egalitarian approaches to helping the needy. He is especially interested in the work of John Rawls, who was a friend of his, and he stresses points about Rawls’s theory of justice that are frequently ignored.
First, as is well known, Rawls’s “difference principle” calls for maximizing the welfare of the least well-off class in society. To do this, the government must tax the better off and distribute the proceeds to the least well-off, to the maximum extent that doing this will benefit them. But if the government does so, this raises a problem for “liberals.” They want the government to spend money on all sorts of other things, but to the extent that the state follows Rawls’s theory of justice, it can’t do this.
Phelps was aware of this problem for redistributionist theories even before Rawls’s ideas became prominent. In a meeting he had with Betty Friedan and a few other people,
a congenial member of Congress . . . raised the matter of the lopsided income distribution in the country and started discussion of a big plan to redistribute incomes. In a chat with Betty in the parking lot later that day, I said she should be aware that such a scheme would require a huge amount of tax revenue, so its adoption would leave little money, if any, to spend on other initiatives of great value to this country.
Liberals who support Rawls’s theory have to confront what for them are uncomfortable choices.
Phelps tightens the pressure on contemporary egalitarians with another point. When Rawls talks about helping the least well-off class, he means the working poor, not those who are so badly off that they can’t work at all. People in his “original position” are trying to arrive at principles to benefit from the gains of social cooperation. Those who don’t contribute at all aren’t included. But Phelps notes that Rawls’s book was “understood by most if not nearly all of the essayists invoking his name as a call for huge tax revenue to be spent on all sorts of welfare programs with little or no concern for the disadvantaged workers.”
Some egalitarians would respond to this point about Rawls’s theory by abandoning it or modifying it: Let’s help others besides the working poor, they would say. Phelps raises a problem for them as well. Specifically, he strongly rejects proposals for a universal basic income (UBI) that would give people money regardless of whether or not they worked:
Unfortunately, the institution of a UBI in a country, although it would be one way to provide the poor with the income with which to live, would do nothing to pull up wages of low-wage workers so they can support themselves—an ability that, in the Western nations at any rate, people need so that they can support their self-esteem. (A cascade of indirect effects might raise wages a little for a while but would slow the growth of wages over the near future.) UBI would draw people away from work, thus causing them to miss the dignity, sense of belonging, self-respect, self-help, and job satisfaction that come only from work . . . the UBI would entice people and their children away from meaningful work and thus from a sense of involvement in the economy—society’s central project. It is disappointing that UBI has not received widespread opposition.
Phelps has first put pressure on Rawlsians and then on UBI defenders. He says to the first group, “If you concentrate only on low-income workers, you will have to give up other projects” and to the second, “If you institute a UBI, you won’t be doing justice to low-income workers.” But the pressure isn’t equal: Phelps is much more favorable to helping workers than to a position that favors the poor in general without giving workers priority.
Phelps asked Rawls about aid to the nonworking poor:
I wrote a letter to Jack [Rawls] in mid-April 1976 from Amsterdam urging him to explain again that his theory is about helping the least advantaged, not the poor in general. Years went by, though, without a response. At last he responded in his paper “The Priority of Right and Ideas of the Good”. . . . In that paper he wrote, “Those who surf all day off Malibu must find a way to support themselves and would not be entitled to public funds.” I felt my understanding of [A Theory of] Justice was vindicated.
We may be grateful to Phelps for showing that those who want to take away people’s money through taxation have to face tough choices. We should instead leave the choices of which people to help to the voluntary decisions of people in the free market.
In an excellent display of how US foreign policy can be used as a means of pandering to domestic interest groups, the Biden administration has threatened to impose sanctions on Uganda as punishment for that regime’s adoption of new laws criminalizing some types of homosexual behavior.
While it is abundantly clear that this move from the Ugandan state presents absolutely no threat to any vital US interest, the Biden administration apparently believes the situation requires immediate action by the US regime.
According to Axios, the Biden Administration’s proposed actions
includ[e] whether the U.S. will continue to safely deliver services under the U.S. President’s Emergency Plan for AIDS Relief and other forms of assistance and investments. … Biden administration officials will also review Uganda’s eligibility for the African Growth and Opportunity Act, which provides eligible sub-Saharan African countries with duty-free access to the U.S. market for hundreds of products.
What exactly are these new laws that require the State Department to get involved in the internal affairs of a country 8,000 miles away? According to The Hill,
The new anti-gay law would impose the death penalty in cases of “aggravated homosexuality” and would impose a life sentence for engaging in gay sex. The state defines “aggravated homosexuality” as homosexual acts carried out by those infected with H.I.V. or homosexual acts that involve children, disabled people, or those drugged against their will.
Or put another way, the death penalty will be imposed in many cases on those found guilty of engaging in sex with children and with people unable to consent. Even in those cases, these are pretty harsh penalties, and certainly few Americans—from any part of the political spectrum—would support such measures.
The proposed method of punishing Ugandans is rather curious, however. Note that the sanctions being discussed include—ironically—cutting off AIDS relief dollars, plus dollars that the regime has long insisted are absolutely vital to economic development and poverty relief in the developing world. If that’s true, then the US regime proposes trying to impoverish ordinary Ugandans as punishment for acts of the Ugandan regime.
It is also notable that the US regime appears to now be fixated on such laws in Uganda when similar laws already exist on the books of several US allies. For example, the death penalty can be imposed for various homosexual acts in Saudi Arabia, Qatar, and the United Arab Emirates. “Death by stoning” is also inflicted on alleged homosexuals in US ally Pakistan. Moreover, after 20-years of US occupation, Afghanistan imposes similar punishments. Those are just the places where the death penalty is potentially imposed. Homosexual acts are criminalized in a variety of countries that retain friendly relations with the US including Egypt—the top recipient of US foreign aid—plus Iraq, Jordan, South Sudan, and Nigeria. Homosexual sex between males can bring life imprisonment in Tanzania.
So why is Uganda now so much in the crosshairs while Saudi Arabia escapes notice?
The fact is the US regime is threatening sanctions on ordinary Ugandans because it can. Given that there is no sizable or electorally powerful Ugandan population in the US, it costs the administration nothing to denounce Uganda while also virtue signaling to extremely powerful and well-funded domestic LGBT interest groups. Denouncing the Saudis or the Qataris, on the other, hand might bring geopolitical “complications” and thus you won’t hear much about Saudi or Qatari punishment of homosexual acts in the US media or in Washington.
The US’s Moralistic and Imperialist Impulses
Moreover, Washington’s willingness to immediately begin threatening sanctions against some faraway country has been part of the overall imperialist impulse that has prevailed in Washington since the end of the Cold War. This was when the US shifted toward become an ever-more-aggressive world morality police that would attempt to globally “protect right” in vague mimicry of how the federal government—via the federal courts and threats of cutting off federal funding—dictates to the states what counts as acceptable law.
This new scheme was apparent by 1994 when Murray Rothbard wrote a sarcastic article suggesting that the US be prepared to invade any foreign country where the local regime has not sufficiently embraced the American regime’s cultural ideals. The key, Rothbard contends, was to define every foreign “deviation” as a threat to US national security. Rothbard noted that even by the mid 1990s, American interventionists such as the neoconservatives had already “cunningly redefined ‘national interest’ to cover every ill, every grievance, under the sun.”
This naturally would lead, Rothbard suggested, to the need to intervene in nearly every foreign country on earth:
Is someone starving somewhere, however remote from our borders? That’s a problem for our national interest. Is someone or some group killing some other group anywhere in the world? That’s our national interest. Is some government not a “democracy” as defined by our liberal-neocon elites? That challenges our national interest. Is someone committing Hate Thought anywhere on the globe? That has to be solved in our national interest. …And so every grievance everywhere constitutes our national interest, and it becomes the obligation of good old Uncle Sam, as the Only Remaining Superpower and the world’s designated Mr. Fixit, to solve each and every one of these problems. For “we cannot stand idly by” while anyone anywhere starves, hits someone over the head, is undemocratic, or commits a Hate Crime.
And so, since no other countries shape up to U.S. standards in a world of Sole Superpower they must be severely chastised by the U.S., I make a Modest Proposal for the only possible consistent and coherent foreign policy: the U.S. must, very soon, Invade the Entire World! Sanctions are peanuts; we must invade every country in the world, perhaps softening them up beforehand with a wonderful high-tech missile bombing show courtesy of CNN.
The good news in the Uganda case is that at least we’re not hearing any calls for actual regime change or “boots on the ground” in Uganda (so far).
Fortunately, many Americans haven’t yet bought into the idea that every objectionable act by foreign regimes can be defined as a threat to US national interests. This is why even today, when Washington targets some foreign regime for “regime change” or economic sanctions or a volley of cruise missiles, the American interventionists usually try to at least suggest that the target regime is some kind of threat to US “national interests.”
Experience suggests that if the regime really wants to get the American public riled up about a new war, Washington has to make the case for something beyond mere “humanitarian” intervention. This is why the Bush administration felt it had to trump up accusations of “weapons of mass destruction” in Iraq. It’s why President Obama claimed the US has a “national security interest in … ensuring that we’ve got a stable Syria.” It’s why those who wanted a US war with Bosnia insisted that conflict in the Balkans in the mid 1990s provided a threat to “vital” US interests such as “European stability” and NATO unity.
Sometimes, though, some foreign countries are so obviously not a threat to the US that “humanitarian” meddling through military action isn’t politically viable. In those cases, the regime usually falls back on “sanctions.”
This strategy has been around a long time. Murray Rothbard noticed this trend in 1994 as well, and he listed just some of the real-life suggested sanctions that could be employed to whip foreign regimes into line:
In recent weeks, in addition to humanitarian troops, there had been escalating talk of American “sanctions”: against North Korea of course, but also against Japan (for not buying more U.S. exports), against Haiti, against the Bosnian Serbs… Jesse Jackson wants the U.S. to invade Nigeria pronto, and now we have Senato[r] Kerry (D., Mass.) calling for sanctions against our ancient foe, Canada, for not welcoming New England fishermen in its waters.
Uganda is just one of a great many regimes targeted in this fashion in recent decades.
Yet the landscape has changed considerably since 1994. In 2023, the US obsession with sanctioning dozens of countries has backfired and begun to isolate the US more and more from the developing world and from any regime that doesn’t enjoy taking orders from Washington. This includes the regimes in some of the world largest economies, including China, India, and Brazil. The US’s tendency to incessantly turn to sanctions to make a political point—and the apparent capriciousness with which the US regime is willing to do so—only motivates the world’s regimes to insulate themselves from the US, whether through minimizing dollar transactions or forming tighter alliances with potential allies outside the US orbit. We may soon find Uganda looking for a similar way out.
Read More:
“Thanks to Sanctions, the US Is Losing Its Grip on the Middle East“”Will Biden Sanction Half the World to Isolate Russia?“”Why Sanctions Don’t Work, and Why They Mostly Hurt Ordinary People”
Although Americans often think that financial privacy is protected by the Fourth Amendment to the U.S. Constitution, financial institutions like banks and credit unions are required by the Bank Secrecy Act to regularly report financial activity to the federal government. Were this violation of privacy not enough to cause upset, the government has long been unable to prove that these reports are even effective in combatting crime.
For those that might be unfamiliar with the issue at hand, financial institutions file tens of millions of reports each year on customers for either “suspicious” activity or activity crossing reporting thresholds (e.g., $10,000). One major issue with this regime is that it doesn’t even appear to be effective for fighting crime. Despite all these reports being filed year after year, it’s unclear just how many criminals are being caught because of these reports. Therefore, the Financial Crimes Enforcement Network (FinCEN) has been repeatedly asked to explain how many reports directly result in investigations, convictions, and the like.
FinCEN’s Suspicious Statistics
On April 25, 2023, FinCEN finally responded to years of requests—well, it partially responded.
The report opens with what should be a sobering statistic for supporters of the Bank Secrecy Act: despite financial institutions spending an estimated $46 billion a year in compliance and filing over 26 million reports, only 15.8 percent of all IRS investigations result from Bank Secrecy Act reports (see Figure 1). Yet, FinCEN does not say how many of these reports lead to a conviction.
While not the direct result of Bank Secrecy Act reports, FinCEN stated that 84.2 percent of all IRS investigations in general and 83.2 percent of IRS investigations recommended for prosecution had used information gained from Bank Secrecy Act reports. This finding may sound like a win for supporters of the regime, but it’s important to recognize the qualifier here: these investigations were not the result of Bank Secrecy Act reports. Rather, the investigations just benefited in some form from the existence of the reports. Without additional detail, one could make the same argument about a library card.
FinCEN also supplied select statistics from the U.S. Department of Justice (DOJ). Here, however, all the numbers are largely meaningless because they too come with a significant qualifier: the reports “supported a significant portion” of select investigations. To be fair, both here and with the IRS, these numbers would be somewhat useful for establishing context in a larger report, but, at best, they overinflate the usefulness of Bank Secrecy Act reports when viewed on their own.
Turning elsewhere, FinCEN’s public database regarding the number of suspicious activity reports (SARs) filed each year reveals more troubling insights. When it comes to reports from depository institutions, the top four reasons for filing a SAR were: (1) concerns regarding the source of funds; (2) transactions near reporting thresholds; (3) transactions with no clear purpose; and, (4) transactions out of pattern (see Figure 2).
Things like money laundering, human trafficking, and terrorist financing only rank as the 18th, 63rd, and 72nd reasons for filing a report. Yet, maybe the most concerning insight is that nearly 2.5 million transactions were reported for being below the reporting thresholds. It calls into question why these thresholds exist at all. As Representative Andy Ogles (R‑TN) pointed out when Acting Director Das appeared before Congress this year: financial surveillance under FinCEN, and the Bank Secrecy Act writ large, has effectively targeted millions of innocent Americans over actual threats.
Conclusion
Later at the oversight hearing, Representative Warren Davidson (R‑OH) said,
Give us some metrics.…Give us the evidence.…How do you measure the effectiveness? …Show me a case where what you collected resulted in a solved crime.…I’m looking for cause and effect. If you want to keep spying on American citizens, you’re going to have to show why.
Between the requests from the public and congressional inquiries, FinCEN is certainly aware of the pressing need to supply statistics on the effectiveness of the financial surveillance it oversees. At this point, however, it’s clear that Congress needs to double down on the government reports required in Title LXII of the National Defense Authorization Act for Fiscal Year 2021 and require FinCEN to publish a public report on the effectiveness of the Bank Secrecy Act.
A new Fed survey shows that banks are cutting back on lending big time. Over the past thirty-five years, this almost always predicts recession. Our economy can’t survive without endless new infusions of easy money.
Original Article: “Banks Are Lending Less Money, and That’s a Formula for Recession”
According to some commentators, the US banking crises is over, or at least can be easily managed by the Federal Reserve System. In addition, the Fed chairman has vouched for the health of the US banking sector.
However, the banking crisis is likely in its early stages. What has started as the collapse of regional banks is likely to spread to national banks. The key reason for that is the decline in the pool of savings and continuation of fractional reserve lending in which banks are legally permitted to use money placed with them in demand deposits in lending activities. Banks treat deposits as though they were loaned to them.
Although permitted by law, from an economic point of view, this results in money creation leading to consumption not supported by production, diluting the pool of wealth. According to Mises:
It is usual to reckon the acceptance of a deposit which can be drawn upon at any time by means of notes or checks as a type of credit transaction and juristically this view is, of course, justified; but economically, the case is not one of a credit transaction. … A depositor of a sum of money who acquires in exchange for it a claim convertible into money at any time which will perform exactly the same service for him as the sum it refers to, has exchanged no present good for a future good. The claim that he has acquired by his deposit is also a present good for him. The depositing of money in no way means that he has renounced immediate disposal over the utility that it commands.
Similarly, Rothbard argued:
In this sense, a demand deposit, while legally designated as credit, is actually a present good — a warehouse claim to a present good that is similar to a bailment transaction, in which the warehouse pledges to redeem the ticket at any time on demand.
Why a free unhampered market will curtail fractional-reserve lending
In a truly free market economy, the likelihood that banks will practice fractional-reserve lending is low. If a particular bank tries to practice fractional-reserve lending it will run the risk of not being able to honor its checks.
The fact that banks must clear their checks is a sufficient deterrent for the practice of fractional-reserve lending. Furthermore, the likelihood of discovering fractional-reserve lending increases when banking is competitive.
As the number of banks rises and the number of clients per bank declines, the chances that clients will spend money from individuals banking with other banks increases. This increases the risk of the bank not being able to honor its checks once it begins fractional-reserve lending.
Conversely, as the number of competitive banks diminishes, the likelihood of discovering fractional reserve banking decreases. In the extreme case of only one bank, it can practice fractional-reserve lending without any fear of discovery. In a free market, the threat of bankruptcy is likely to prevent banks from lending money that is taken from demand deposits without the depositor’s consent.
Central banks encourage fractional-reserve banking, however. Through monetary injections, the central bank prevents bankruptcy of banks that lend depositors money without their consent, resulting in lending out of thin air, leading to an exchange of nothing for something. Please note that savings do not back the loans generated through the fractional reserve lending. Obviously, this type of lending undermines the wealth generation process, and the weakening of wealth production diminishes the borrowers’ ability to repay the loan.
Credit out of thin air causes the disappearance of money
When loaned money is fully backed by savings, it is returned to the original lender. Bob – the borrower of $10 – will pay back on the maturity date the borrowed sum plus interest to the bank. The bank in turn will pass to Joe the lender his $10 plus interest adjusted for bank fees. The money makes a full circle and goes back to the original lender, as the bank is just a mediator, not a lender.
In contrast, when credit originates out of thin air and is returned on the maturity date to the bank, this leads to a withdrawal of money from the economy, a decline in the money stock.
Because we never had a saver/lender, this credit emerges from nothing.
Credit out of thin air sets platform for non-productive activities
If banks expand credit out of thin air, non-productive activities expand. Once the continuous generation of credit lifts the pace of wealth consumption above the rate of wealth production, the positive flow of savings reverses and a decline in savings follows. Consequently, many loans become bad. In response, banks curtail lending and a decline in the money stock begins, as loans generated out of thin air go bad or are repaid with no new lending afterward.
When savings decline, a recession looms. Most mainstream economists a severe economic slump occurs because of a decrease in the money supply, a view that both Monetarists and Keynesians hold.
Economic downturns are not caused by a collapse in the money stock but are a response to the shrinking pool of savings brought on by easy monetary policy. The shrinking pool of savings leads to the decline in the credit out of thin air, which then causes the money stock to fall. Even if the central bank were to successfully prevent the decrease of the money stock, this cannot prevent a downturn if the pool of savings also is declining.
Current banking crisis is in response to the previous loose monetary policies
The present framework of fractional reserve lending and central banking creates instability in the banking system. It is not possible to stabilize the current banking system outside of creating a true free market in banking. Instead, the ever-expanding monetary pumping by the Fed makes things worse. It cannot prevent a decline in the money supply if savings are declining.
The Fed’s attempts to counter this decline leads to extremely loose monetary policy, further inflicting more damage to the process of wealth generation. If the process of creating “helicopter money” continues, it can destroy the present monetary system.
Conclusions
Banks really are facilitators of the lending of savings. They enable the flow of savings by introducing the suppliers of savings to the demanders. By fulfilling the role of the intermediary, banks are an important factor in the process of wealth formation.
However, once banks begin to lend by replacing the genuine lenders and savers, they create the menace of the boom-bust cycle and economic impoverishment. It is impossible to increase genuine credit without the corresponding increase in savings.