With each iteration of the banking crisis, the Federal Reserve System and federal regulators gain in power and authority. Maybe the banking crisis isn’t an accident.
Original Article: “Is the Banking Crisis Being Orchestrated?“
On June 28, President Joe Biden took to the stage in Chicago to drum up support for his economic agenda, which his own team has taken to calling “Bidenomics.” The speech was part of a broader publicity tour, “Investing in America,” with the president and his cabinet traveling the country trying to get the American people to see Biden’s economic policies as successful and popular.
In his speech, the president attacked so-called trickle-down economics, which he painted as the dominant economic policy of the American government for decades. He then defined his agenda, Bidenomics, as a “new philosophy” set to “restore the American Dream.”
But Bidenomics isn’t a new philosophy. If you look at what’s been enacted and what’s still being proposed, it becomes clear that all Biden is doing is ramping up the federal government’s industrial policy. And industrial policy has, unfortunately, been around for a long time—as have its effects. When governments pursue industrial policies, they attempt a form of entrepreneurship. And in doing so, they divert scarce resources and capital away from the production of goods and services that people actually want, freed from the feedback of the market. Bidenomics won’t restore the American Dream but will do it damage.
All the fancy, focus-group-approved economic talking points the administration is now spamming us with begin to unravel when one understands basic economic truths. Chief among these truths is that the economy is a process—not a state of being. Specifically, it’s a process for producing goods and services that satisfy the needs and wants of consumers. Every part of every line of production is a means toward that end.
For an economy to grow and everyone to become wealthier, some people need to take on the role of an entrepreneur. Entrepreneurs reallocate resources to new lines of production or refine existing lines to account for changing factors like technology, capital availability, and consumer preferences. This activity is undertaken with the purpose of producing or contributing to the production of goods and services that consumers value enough to pay for.
In a market unhampered by a government, the resources and capital used in production are the property of capitalist-entrepreneurs. That means they have control over how these inputs get used. And, because they also own the produced outputs, the capitalist-entrepreneurs are personally subjected to the constant and unignorable feedback of the profit and loss system.
Consumers on the free market can opt out of any exchange for any reason. That’s why capitalist-entrepreneurs can only make profits if they produce things consumers value. When they don’t, they are stuck with the losses. Economic losses are a motivating signal that the resources used in a line of production would be better used elsewhere.
How does Bidenomics fit into all of this? Again, one could describe much of Biden’s economic agenda as ramping up industrial policy—meaning the government is attempting entrepreneurship. Political officials are using tax dollars to acquire resources that they then allocate to new production lines. Bidenomics also entails using tax-funded subsidies to get private investors to fund projects they wouldn’t have chosen otherwise. All these tax dollars pouring into new projects allow the administration to brag about creating jobs and producing stuff, which sounds good in a campaign speech, regardless of whether the end consumers value these things as the best use of scarce resources.
From a purely practical standpoint, the federal government cannot help but be a terrible entrepreneur because it is immune from economic losses. The American people are legally prohibited from opting out of their payments to the government as they are allowed to do with any other organization. As such, the government can spend decades on wasteful projects of little to no value and face no direct economic consequences. On top of that, the lack of feedback can allow the government’s operations to drift further away from reality as scarce resources go wasted and consumer needs go unmet.
Entrepreneurship is an essential part of a growing economy. But the wealth creation brought about by entrepreneurship is only truly possible with the freedom and feedback under private property. The quasi entrepreneurship taken on by the government in the president’s economic agenda siphons scarce resources away from more valuable uses and into projects protected from the critical feedback of economic losses. Policies like this aren’t going to “restore the American Dream”; they’re the very thing killing it.
On June 20, the Pennsylvania House of Representatives passed a bill to raise the commonwealth’s minimum wage to $15 per hour by 2026. Although the bill is unlikely to pass the state senate, it seems only a matter of time before the minimum wage is raised from its current $7.25 per hour, where it has been since 2006.
The Lesson
Those supporting this bill need to read Henry Hazlitt’s Economics in One Lesson. Written in 1946, it has become a classic of free market advocacy. Hazlitt brings to modern audiences the timeless lesson most famously penned in 1850 by Claude Frédéric Bastiat in “That Which Is Seen, and That Which Is Not Seen.”
The one lesson has two parts. First, any economic action must be viewed for its effect not only on the immediate party but by its effect on all parties in society. In other words, using the minimum-wage proposal as an example, one must view its effect not only on those whose wages will rise—if they still have a job—but by its effect on all of society, including those who may lose their jobs because of the new minimum-wage law.
Furthermore, one must view the effect of the law not only in the short run but also in the long run. Economic interventions take a while to work their way through the economy, maybe years. This is not difficult to understand, and it is amazing that legislation to raise the minimum wage completely ignores the probable consequences.
The Consequences
In the short run, it is probable that some workers’ wages will be raised to the new minimum. It is also probable—let us even say that it is a certainty—that some workers will lose their jobs. No one is claiming that raising the minimum wage will increase jobs. So, Pennsylvania will suffer higher unemployment among low-income workers. Higher unemployment leads to increases in unemployment compensation claims. However, unemployment compensation payments run out over time. Then, these low-income workers will be forced onto public assistance. They will remain there until their marginal productivity is at least equal to the new minimum wage, which is much higher than the stated wage due to taxes of various kinds.
Of course, idle hands are the devil’s workshop. It is not reasonable to assume that young, unemployed, vigorous men will do nothing. Despair will drive some to work in the unregulated shadow economy, which would include criminal activities such as drug dealing and theft.
Ah, but we are looking only at the impact of this pernicious legislation on the worker. How about the rest of society? Let’s start with the employer of minimum-wage workers. To the extent that these employers cannot continue to employ low-productivity workers at the higher minimum wage, they will be faced with existential decisions. Some employers will go out of business. Others will continue in business at some reduced level. Others may need to invest expensive capital in automation. (Recently, my restaurant dinner was delivered to my table by a robot!)
There’s always some risk in these investments, not the least of which is that automation may turn out to be more expensive than originally assumed. If the business owner cannot pass along the full cost of this higher expense to the customer, the owner may decide to close their business. What about the rest of society? The customer’s disposable income is no longer sufficient to meet the demands of higher-cost goods and services. He must cut back somewhere. Even if he reduces his savings in order to maintain his previous standard of living, less capital will be accumulated for maintaining his lifestyle in the future. Business in general will suffer from a diminution of capital once all these reductions in savings are added up.
There Is No Upside to a Higher Minimum Wage
There’s no such thing as a free lunch nor a cost-free mandated increase in some necessary business expense. There is no upside to an increase in the minimum wage. If there were some benefits, why stop at fifteen dollars per hour? Why not twenty dollars? Why not a hundred dollars? If twenty dollars per hour sounds OK but not a hundred dollars, what is the correct number? Please, do not bring up the argument that the lower-paid workers need the money. For one thing, we’ve already established that many will become unemployed if the minimum wage increases.
Furthermore, the fact that many workers chose to work at the current minimum wage establishes the fact that they made a free choice. These workers either chose not to work at a different job paying a higher wage or were unable to qualify for a higher-paying job at this time. Chopping off the bottom rung of the employment ladder on which these workers stand is tantamount to a crime perpetrated by the state. It deprives potential workers of learning on-the-job and proving themselves as they become more productive and thus worthy of higher pay. Most of us started working in life this way. I certainly did.
The Democratic Socialists of America promotes a supposedly pro-Indigenous people platform. They stress that they do not want to further the “dispossession and exploitation of Indigenous people” while also recognizing the sovereignty of Native Americans. The Communist Party USA’s political program also stresses the inclusion of Indigenous people in the working-class movement. While these organizations are partially right in calling for the recognition of tribal sovereignty (free enterprise would help more than socialism), they must also recognize the atrocities committed by the Soviet Union, the representative of twentieth-century socialism, against the native tribes of Siberia.
I alluded to the abuses of minority groups by the Soviet Union in a recent article, but I did not go into much detail regarding the exploitation. The abuse of the native Siberians provides a case study.
Upon solidifying their control of Russia, the Bolsheviks inherited a vast swath of the land known as Siberia. They would use this land for their gulags, but there was also the issue of the native tribes.
Historian Benson Bobrick describes the abuses inflicted upon the native Siberians in his book East of the Sun. Although the Soviets proclaimed sovereignty for the “different nationalities” in Russia, the Siberians’ fate was not kind. Rather than simply allowing the natives to have autonomy, the Soviets set up the Committee of Assistance to the Peoples of the North.
This was the beginning of the cruel joke of sovereignty under the Soviets, which was not real sovereignty in the slightest. The Soviet structure gave no “real autonomy”; the Siberians were essentially under the direction of Russian bureaucrats.
While there were some improvements to hygiene and healthcare (such would be expected when giving aid to a more-or-less primitive society), the Soviets took steps that frustrated and broke down Siberian culture. Initially, the Roman-based alphabets of the native languages were replaced by the Cyrillic alphabet; the state encouraged the study of the Russian, rather than native, language. This is a tendency seen in many imperialistic endeavors. (For another example, the British crown banned the Gaelic language in Scotland in 1616.)
Shamans and other leaders were eliminated through dekulakization, Tartar mosques were closed, temples were destroyed, and native farming habits were forcibly displaced by the chaotic methods of central planners. The Cossacks were treated in a similar manner through de-Cossackization, which was the systematic deportation and execution of the Cossacks, another Siberian minority group. The Arctic Siberians were managed by state planners sent to make sure that reindeer herding kept to the official plan, a plan that in no way could account for the thousands of years of specialized knowledge that the Siberians had developed with their unique agricultural methods.
The contrast between the Soviets and the Siberians was most evident when the communist modes of production were imposed on the primitive “communism” of the Siberians. Bobrick states:
Although at first the government supposed that primitive native communism would make concepts of modern communism easier to apply, native ideas of sharing were found to be too generous, notably disconnected from the labor theory of value, and their failure to distinguish between work and leisure judged to be “unproductive” and “ideologically wrong.”
The Soviets were trying to fit a square through a circular hole. Official plans could not account for the needs of the population. No matter, though. The bureaucrats continued their work on the Siberians. When World War II began, “20 percent of the total native population was conscripted and sent to the front,” forced to fight a war they had no stake in.
Rather than giving the Siberians autonomy, the Soviets micromanaged the Siberians’ affairs and, when war broke out, sent a large portion of the population to the front lines to die for Mother Russia. The natives were treated as resources to be shifted around and disposed of rather than as free peoples.
Bobrick continues to tell of the native people’s dealings with the Soviet Union, but the details highlighted above are the most glaring injustices. Today, the Siberians are still under the yoke of Russia, albeit as a less authoritarian regime; however, parallels abound. The war in Ukraine is leading to the conscription of native Siberians.
A modern approach to the question of native sovereignty is simple. Siberians should be allowed to secede from Russia or become completely autonomous regions, allowing spontaneous arrangements to reign rather than central controls. The same goes for the native tribes in the United States and the rest of the world, rather than repeating the mistakes made by Russia’s Soviet forebearers.
Defenders of the free market should acknowledge this solution, but so should the socialists. In keeping with their various platforms, modern socialists should fully acknowledge the abuses of native Siberians by the Soviet Union and actively advocate for Siberian sovereignty, just as they do for Native Americans.
Patrick Deneen writes that the nonaggression principle promotes a liberalism that is harmful to society, as evidenced by John Stuart Mill’s idea of the tyranny of public opinion.
Original Article: “Misreading Mill“
Murray Rothbard once proposed:
Quick: Which is America’s Most Persecuted Minority? No, you’re wrong. . . .
All right, consider this: Which group has been increasingly illegalized, shamed and denigrated first by the Establishment, and then, following its lead, by society at large? Which group, far from coming out of the “closet,” has been literally forced back into the closet after centuries of walking proudly in the public square? And which group has tragically internalized the value-system of its oppressors, so that they are deeply ashamed and guilty about practicing their rites and customs? Which group is so brow-beaten that it never thinks of defending itself, any attempt at which is publicly condemned and ridiculed? Which group is considered such sinners that the use of doctored statistics against them is considered legitimate means in a worthy cause?
I refer, of course, to that once proud race, tobacco-smokers, a group once revered and envied, but now there are none so poor as to do them reverence.
However, there is nothing I could say to defend that once-proud group that Rothbard did not already say better. What this article seeks to do is point out that as much as the establishment, commercials, the government, and just about everyone likes to criticize tobacco smokers, these critics leave a gaping hole in the critiques of free markets regarding the “free rider problem,” or the problem of “external benefits.” Rothbard explains:
We come now to the problem of external benefits—the major justification for government activities expounded by economists. Where individuals simply benefit themselves by their actions, many writers concede that the free market may be safely left unhampered. But men’s actions may often, even inadvertently, benefit others. While one might think this a cause for rejoicing, critics charge that from this fact flow evils in abundance. A free exchange, where A and B mutually benefit, may be all very well, say these economists; but what if A does something voluntarily which benefits B as well as himself, but for which B pays nothing in exchange?
It is here that the conversation of smoking comes into play. Smokers are told that they have made those around them worse off with their smoking via the secondhand smoke that those around them must face. However, it could be retorted that this is not a detriment but rather a public good. After all, the smoker paid good money for his cigar. Not only should he be allowed to smoke it, but he should also be compensated for the secondhand smoke that the surrounding free riders received just by the dumb luck of being there. By the logic of those arguing about free markets due to external benefits, a smoker should force the arguers’ hands and claim what is rightfully his.
Of course, there is a very reasonable retort to this: “But secondhand smoke is bad!” However, this is the point of the whole argument. What the smoker values is not the same as what the other man on the porch values and vice versa. To say that one should not be taxed to pay for the secondhand smoke of the other is to concede the entire Austrian economics argument as it relates to the external benefits problem. Who is to say what is a benefit and what is a harm? In fact, this harkens back to Hans-Hermann Hoppe’s criticism of the free rider problem:
Something is not a good as such, that is to say; goods are goods only in the eyes of the beholder. Nothing is a good unless at least one person subjectively evaluates it as such. But then, when goods are never goods-as-such—when no physico-chemical analysis can identify something as an economic good—there is clearly no fixed, objective criterion for classifying goods as either private or public. They can never be private or public goods as such. Their private or public character depends on how few or how many people consider them to be goods, with the degree to which they are private or public changing as these evaluations change and range from one to infinity.
It must be true that the smoker who paid good money for his good must be compensated for the public benefit he has provided, or it must be true that it turns out value is subjective and what seems a public good to one is not to another. As such, the next time an anti–free marketer challenges you with the external benefits problem, light up a cigar and remind them, as Rothbard has said, that “the free rider did not ask for his ride.”
It’s fitting that the G7 recently met in Hiroshima because the policies they are following are blowing up the world economy.
Original Article: “The G7 in Hiroshima: The Latest Attempt to Impose a Unipolar World“
Argentina is one of the world’s poster children for hyperinflation. Unfortunately, monetary reforms aren’t working because the authorities are not serious about having a sound currency.
Original Article: “The Argentinian Zombie Currency“
Recorded by the Mises Institute in the mid-1980s, The Mises Report provided radio commentary from leading non-interventionists, economists, and political scientists. In this program, we present another part of “Ten Great Economic Myths”. This material was prepared by Murray N. Rothbard.
Every time someone calls for the government to abandon its inflationary policies, Establishment economists and politicians warn that the result can only be severe unemployment. We are trapped, therefore, into playing off inflation against high unemployment, and become persuaded that we must therefore accept some of both.
This doctrine is the fallback position for Keynesians. Originally, the Keynesians promised us that by manipulating and fine-tuning deficits and government spending, they could and would bring us permanent prosperity and full employment without inflation. Then, when inflation became chronic and ever-greater, they changed their tune to warn of the alleged tradeoff, so as to weaken any possible pressure upon the government to stop its inflationary creation of new money.
The tradeoff doctrine is based on the alleged “Phillips curve,” a curve invented many years ago by the British economist A. W. Phillips. Phillips correlated wage rate increases with unemployment, and claimed that the two move inversely: the higher the increases in wage rates, the lower the unemployment. On its face, this is a peculiar doctrine, since it flies in the face of logical, commonsense theory. Theory tells us that the higher the wage rates, the greater the unemployment, and vice versa. If everyone went to their employer tomorrow and insisted on double or triple the wage rate, many of us would be promptly out of a job. Yet this bizarre finding was accepted as gospel by the Keynesian economic establishment.
By now, it should be clear that this statistical finding violates the facts as well as logical theory. For during the 1950s, inflation was only about one to two percent per year, and unemployment hovered around three or four percent, whereas nowadays unemployment ranges between eight and 11 percent, and inflation between five and 13 percent. In the last two or three decades, in short, both inflation and unemployment have increased sharply and severely. If anything, we have had a reverse Phillips curve. There has been anything but an inflation-unemployment tradeoff.
But ideologues seldom give way to the facts, even as they continually claim to “test” their theories by facts. To save the concept, they have simply concluded that the Phillips curve still remains as an inflation-unemployment tradeoff, except that the curve has unaccountably “shifted” to a new set of alleged tradeoffs. On this sort of mind-set, of course, no one could ever refute any theory.
In fact, inflation now, even if it reduces unemployment in the short-run by inducing prices to spurt ahead of wage rates (thereby reducing real wage rates), will only create more unemployment in the long run. Eventually, wage rates catch up with inflation, and inflation brings recession and unemployment inevitably in its wake. After more than two decades of inflation, we are all now living in that “long run.”
For more episodes, visit Mises.org/MisesReport
Estimates of United States growth have improved but remain massively below the Federal Reserve projections.
After the largest monetary and fiscal stimulus in recent years, growth remains well below trend, and debt is significantly higher. It is interesting to hear Janet Yellen say that “trickle-down economics did not work” when this is the failed trickle-down: massive government deficit spending leads to negative real wage growth and weaker GDP.
Current consensus real GDP growth for 4Q23 stands at 0.2 percent, significantly lower than the median projection of one percent in the FOMC’s June Summary of Economic Projections.
The latest figure, for example, shows evidence of headline strength hiding weakness in the details. New durable-goods orders surged in May, but this headline growth disguised that core capital-goods orders were revised down again.
Even if we consider the optimistic assumptions of the Biden administration, which assume a two percent per annum GDP growth until 2032 and 3.8 percent unemployment, the United States federal government deficit would not fall below five percent of GDP even in 2032. That is a deficit that rises from $1.1 trillion in 2023 to $2.01 trillion in 2032, an accumulated deficit between 2023 and 2032 of $15.46 trillion. That is a 106 percent debt to GDP, according to the Biden administration calculations even with very bullish estimates of growth that consider no recession or stagnation in the entire forecast period.
One of the biggest problems of this neo-Keynesian approach to government budgets is that it leaves households with less money in real terms, and the “anti-inflation” measures increase debt and inflation.
Take the American Rescue Plan. It was supposed to be the helicopter money solution to the crisis, giving families cash and supporting consumption through the pandemic. Adjusted for inflation, Bloomberg Economics estimates the average household in the bottom 40 percent of the income distribution now has liquid assets worth $1,200 less than they did before covid. You wanted the stimulus check? With printed money? You paid for it multiple times over in higher inflation.
The other key policy items of the Biden administration, the Inflation Reduction Act, the CHIPS and Science Act, and the Bipartisan Infrastructure Law, were created to incentivize aggregate demand and boost investment in areas where the private sector seemed to be underinvesting. However, it was not the case. The problem is that the government does not have more or better information about the requirements of the real economy, assumes erroneously that the private sector did not invest because of some flaw in the market, and these massive federal expenditure programs generate more inflation as they add artificial demand created with newly printed units of currency to an economy that is already working at full capacity and full employment. Thus, it puts more fuel to the fire of inflation.
Bloomberg Economics warns that “If successful, the benefits of these projects will play out in the long term – and other deliverables, like reduced dependence on China and lower carbon emissions, won’t show up directly in the GDP data. In the near term, our view is that the costs in terms of higher inflation and recession risks offset the benefits and may even outweigh them”. Even if we assume a benign view of multiplier effects, the result is that these plans accelerate the risk of a recession by artificially tightening an already strong labor market and putting more pressure on supply chains.
The Inflation Reduction Act assumes a total of $500 billion in federal expenditure and tax breaks to accelerate investment in clean energy. This was utterly unnecessary when the United States was already a global leader in renewable energy investments, and the program so far has created more inflationary pressures as artificial government spending added to an already hot industry. Furthermore, if there was an industry that required no further support from the government it was the clean energy sector, which had no impact from the pandemic on investor demand and ample financing capacity.
The same happens with the Bipartisan Infrastructure Law, $550 billion in new spending over five years, included a clearly unnecessary artificial boost to an already booming sector, driving prices much higher.
Even considering revenue-generating measures, and assuming they would work, the net effect “will be to add on average about 0.1 percent of GDP per year to the primary fiscal deficit during that period” according to Bloomberg Economics.
Launching multi-billion spending programs financed with newly created money and debt into an economy that was already running at full capacity has added to inflation and further debilitated the public finances. Meanwhile, the measures taken by the Federal Reserve to reduce the inflationary pressures -that were worsened by the government anti-inflation spending programs- make a recession more likely. The Federal Reserve must act to reduce the inflation that the government generates with its anti-inflation spending programs and by doing so, may create a recession as the rate hikes and monetary contraction hinder families and businesses. Brilliant.
When all this fails and revenues fall below estimates, growth deteriorates or leads to a recession, and debt soars, neo-Keynesians will say that another massive government spending program is required.