Thursday, March 25, 2021

Mises Wire

Mises Wire

The Opportunity of a Lifetime

Posted: 24 Mar 2021 12:45 PM PDT

A hedge fund in New York known to Mises is looking for two interns for this summer. "I thought Mises was a good place to look given that our world views are the same. Qualifications: smart, hungry to succeed, finance education, desire to work in finance, common sense, high EQ, abstract thinker, believer in American exceptionalism, willing to work long hours."

If so, send your resume to me at rockwell@mises.org.

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Josiah Neeley Gives the Other Side on What Happened with the Texas Power Freeze

Posted: 24 Mar 2021 11:00 AM PDT

Josiah Neeley is the Texas Director and Resident Senior Fellow in Energy for the R Street Institute. He has a lively discussion, pushing back on some of Bob's previously articulated points regarding the recent Texas freeze and blackouts.

Mentioned in the Episode and Other Links of Interest:

​For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.

Austrian Economics Research Conference 2022

Posted: 24 Mar 2021 10:45 AM PDT

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Rob Bradley Gives a Brief History of US Electricity Regulation, with Lessons for the Recent Texas Freeze

Posted: 24 Mar 2021 10:00 AM PDT

Rob Bradley is an expert in the history of US energy markets. He explains the role of Sam Insull (co-founder of General Electric) in showing what a free market in electricity would look like, and then criticizes Texas' ERCOT as a central planning agency.

Mentioned in the Episode and Other Links of Interest:

​For more information, see BobMurphyShow.com. The Bob Murphy Show is also available on Apple Podcasts, Stitcher, Spotify, and via RSS.

Libertarian Scholars Conference

Posted: 24 Mar 2021 09:30 AM PDT

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The Border Crisis Is the Latest Example of Government "Efficiency"

Posted: 24 Mar 2021 09:00 AM PDT

By nearly any standard, the US government's administration of border control is a disaster.

If the goal is to limit border crossings, things are a mess. If the goal is to facilitate more legal immigration, things are a mess. If the goal is simply to give every potential immigrant a timely hearing, that too is a mess. The only scenario in which the current situation is a success is the one in which advocates for unrestrained migration cynically attempt to overwhelm the system in the hope it can be rendered inoperable. 

In any case, the feds are just up to their usual antics: putting in place a monstrously inefficient, inept, and immoral regulatory system. Anyone caught up in the immigration system is likely to find himself (or herself) waiting months—or even years—for a hearing.

This was already the case under the Trump administration. In March of 2019, we were already hearing that the backlog for immigration hearings was up 300 percent. The backlog reached a million cases by late 2019. Meanwhile, the backlog for green cards hit a record-breaking 1.2 million in late 2020. In 2021, the wait time for a hearing ranges from 715 days to more than four years. The queue for legal immigrants seeking to enter the US through the normal channels has been notoriously long for many years. As early as 2015, the list stood at 4.4 million, with some people on the list for more than for more than fifteen years.

People who loathe immigrants, of course, are unlikely to see much of a problem here. The attitude in some circles is "who cares if they ever get a hearing, so long as they're detained or kept out of the country?"

This attitude fails to make some important distinctions. The wait list for people apprehended as suspected illegal aliens is only part of the equation. Moreover, mere suspicion that a person is an illegal immigrant doesn't make him so. Thanks to the US government's bizarre and clearly unconstitutional hundred-mile "border zone," American citizens who don't carry their passports on them at all times can be harassed and arrested by Border Patrol agents, even well inside the US border. As the New York Post describes it, "Immigration and Customs Enforcement agents are arresting US citizens by mistake and holding them at detention centers for months—sometimes even years." How could these cases of wrongful arrest drag out for years? Government "efficiency" is the answer. 

In other words, all these people need hearings, and all suspected illegal immigrants deserve a hearing regardless of our opinion of them, since, as Judge Napolitano has noted, the Bill of Rights doesn't apply just to American citizens or people we like.

The list for confirmed legal immigrant applications and green card applicants is another matter entirely. These groups, of course, include family members of longtime American citizens. Also affected are employers who wish to employ specific workers or groups of workers. But the workers can't get to their jobs thanks to the sheer inefficiency of the government's administration. In other words, even people who are invited in and sponsored by American citizens, can't get in—or can't get permission to work—because the US government can't or won't get its act together.

There is nothing shocking here. This is what we've come to expect from government institutions that have no skin in the game and face no penalties or loss of revenue from an inability to perform their basic functions properly.

In other words, the federal government insists that it has the final say—i.e., a monopoly on enforcement and administration—at the border, yet can't be bothered with doing what it promises to do. It won't hire enough staff, or alter methods to expedite processes. And why should it? These agencies will continue to get paid and are likely to get budget increases no matter how poorly they perform. If these agencies face pressure to hire more workers or speed things up, they typically whine that the taxpayers aren't paying enough taxes. 

Nor is this problem limited to immigration. This sort of thing permeates countless types of government administration from business permits to law enforcement. 

The Problem of Regulatory Bottlenecks

For example, through the Bureau of Land Management, the federal government manages one in every ten acres of land in the United States, and approximately 30 percent of the nation's minerals. In other words, the federal government has monopoly control over an enormous swath of the United States. And what if a private firm wishes to engage in any mining or drilling on those lands? This is no simple matter. According to a 2020 report from the Government Accountability Office, "each year [the BLM] receives more applications than it can review … in some cases, records have been lost."

But this is no big deal from the BLM's perspective. After all, since BLM lands are firmly within the hands of a government agency, the BLM need not worry about timely responses or "customer service." Thus, the BLM hasn't bothered to try to figure out how to expedite the permit process. As the GAO report notes, the BLM has "no documented process for whether or how to prioritize applications"

Indeed, backlogs of this sort permeate every level of government.

For example, the Washoe County sheriff in Nevada, has created an "enormous backlog of concealed carry weapons permit requests." Some variation of "we're working on it" or "we're overwhelmed" seems to be the standard reply.

Another common problem is long backlogs for developers who wish to build housing. In Kitsap County, Washington, for example, county officials have created a months-long waiting period for building permits. Developers must just sit around and wait, even as the price of housing continues to accelerate thanks to a lack of supply. 

Business owners are well acquainted with this particular category of government subterfuge: the agency sets up a variety of hoops to jump through, such as government inspections of a business or of new construction. But these agencies also can't be bothered with providing inspectors or adjudication when needed or in a timely fashion. 

And then, of course, there are the long, long wait times for people forced to go through the government's legal system. Even before the covid panic, courts generally proceeded at a snail's pace. According to a report by the Criminal Court of the City of New York, a decade ago "it took over 400 days, on average, in the city's other four boroughs to bring a case to a jury trial and verdict—with cases in Brooklyn taking nearly 600 days."

Meanwhile, some courts are so inept at sticking to a schedule that the more honest judges are forced by law—and by a consideration for the Bill of Rights—to dismiss cases before they are even brought to trial. Although the right to a speedy trial goes back at least as far as the Magna Carta, it's apparently too hard for prosecutors and courts to get their act together in a timely fashion.

[Read More: "Another Right Abolished by the Government's COVID Lockdown: The Right to a Speedy Trial" by Ryan McMaken]

Similarly, victims or victims' families might find themselves waiting years for justice, even when a defendant has already been identified. There's the case of murderer Christopher Holland, for example, who was identified by DNA evidence in a murder case in 2007. He wasn't tried and convicted until 2015. And what if he had been not guilty? He would have essentially been on trial for eight years. Now some states are using the covid shutdowns as an excuse to draw out the process even more.

"We Need More Funding!"

And why should these government agencies be particularly concerned with these delays and the many hurdles through which the victims of government regulation must jump? After all, it's not like the businessman, defendant, or victim can go anywhere else, as would be the case in a marketplace.

But by virtue of being government monopolists, these government agencies can easily force the "customers" to wait for months or years for "service" without any hits to the agencies' profits, budgets, or competitiveness.

Competitors, after all, are illegal in this scenario.

Naturally, the government agencies themselves complain about budget cuts, and a resulting lack of staff. If only those stingy taxpayers would cough up more dough!

The numbers show the taxpayers are, however, paying out plenty of money. Over the past ten years, state and local tax revenue in America has increased by an average of 2.5 percent per year. Federal tax receipts, meanwhile, increased by an average of 5.8 percent per year. During that time, the US population increased by an average of 0.6 percent per year.

Government revenues are outpacing population growth by a healthy margin. Yet government agencies can't seem to do the basic functions they claim they'll do. 

So, whether we're talking about real estate development, immigration, or law enforcement, the general story is always the same. "You leave that up to us," the bureaucrats say. "We'll handle the regulation and the administration to make sure everything is free and fair."

But then what actually happens? We end up with unresponsive bureaucrats and terrible "customer service." And, of course, there's nothing the victims of this negligence can do about it. They're just told to pay more money to "fix" the problem. 

Imagine if the private sector functioned this way. Imagine a business had countless unhappy customers—and then decided the answer was to increase prices by 20 percent. We all know what would happen to that business. Competitors would spring up and the original firm would lose a whole lot of market share. 

Fortunately for them, government agencies don't have to worry about this. They'll enjoy a monopoly no matter what, and that means business as usual. 

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Central Planning by Business Is Not the Same as Central Planning by Government

Posted: 24 Mar 2021 09:00 AM PDT

Advocates of capitalism say: "CENTRAL PLANING DOESN'T WORK!"

Also advocates of capitalism: "CORPORATIONS DO WORK!"

Sensible socialist: "Uhhh … aren't corporations all centrally planned?"

This is a relatively new, and even imaginative critique of markets which has recently been circulating the meme-o-sphere. It looks like a pretty clever point at first glance, but it completely misses the mark on how and why markets work and why we advocate for them. There are several key differences between a so-called central plan issued by the CEO of a company and those issued by a commissar, or even a democratically elected senate or parliament.

Do the people whom services are produced for actually like the product? How can we tell? Well, on the free market people have limited resources and they need to make choices on what to spend those on. There is a tendency for them to buy the things they value the most first, and to get the stuff they could make do without if they have enough left over. This means that businesses have the feedback mechanism of profit and loss to let them know if, when it comes to the crunch, people value what they are selling enough to buy it at the expense of everything else they could possibly buy instead. This lets them know if their "plan" is any good or not. The government has to tax people and then make a wild guess.

In addition to that, the "central plan" of the corporation is competing with the "central plans" of several competitors, who may be doing certain things better than them and certain things worse. They can look across to try and figure out what others are doing right and tweak their plans in light of the evidence of trial and error between several different service providers. If someone makes an innovation, they can copy or even improve upon that idea if it is suitable to their business also. There is a place for variation between products, as every consumer has slightly different preferences, but fundamentally, if they fail to keep up with the better "central plans" of their rivals, then their own, inferior plans will be eliminated from the market—they'll either have to close up shop or try another product which they are better suited to producing. Since the commissar is delivering a monopoly service, he cannot compare the relative merits and success of alternative variations.

Also, companies can look at the accounting books of every single department and see exactly which ones are contributing to the bottom line of the company and which are simply wasting resources and fix problems this way. Sometimes they can even go down to the employee level and see who is contributing what to the ultimate benefit of the company, product, and consumer. If certain employees are not pulling their weight, they are harming the business and its customers and can either be trained or made redundant to find a job they are better suited to. Without the mechanism of profit and loss it would be impossible for a government agency to track down exactly which part of the process is causing a product or service to fail and fix that part of the process, because they have no accounting. They may have raw data on how many people are working, what resources are being used and how much of them, etc., but these are all meaningless facts without a way to measure which are contributing and which are being wastefully misused.

Business owners have a huge incentive to cater well to their customers so that those buyers come back time again and tell their friends. They don't want to lose them to the "plans" of their competitors. There is also an incentive for corporations to save on unnecessary costs to keep prices down. This means they can invent innovations or find ways to make less scarce resources stretch further or find ways to recycle biproducts into useful goods instead of wasting them. Because the government is forever spending other people's money on other people, they don't need to economize, because the money does not belong to them. They also don't worry too much about the quality of the product, because it's not going to be used for them, and the consumer has already been forced to paid for it, whether they like it or not, through the tax system. They can't "take their business elsewhere," so to speak.

Even with all the incentives and data which the feedback mechanism of profit and loss provides to corporations, mistakes are routinely made in the "central plans" of businesses. Often, they completely misjudge what the customer is going to want, and they can lose millions in sunk costs, which they invested in research, machines, or the production of products that end up in the bargain bin, sold for less than it cost to make them. But while all this is taking place, the consumer has always had the alternative of buying something better from a rival business. They are not going to go hungry because a new strain of corn is tasteless and dull. Someone else has produced something delicious and inexpensive for them to eat instead. Even if mistakes bankrupt an entire company, the negative effects of that—however regrettable—will still only be limited to a relatively small number of people. The owners, staff, suppliers, and loyal customers of that particular organization. On the other hand, if the central planners of an entire economy make a mistake, which they are only bound to do given the scale of the decisions on their hands—not to mention the impossibility of acquiring all the requisite information to make good decisions at that scale—that mistake is liable to harm millions and millions of people. It could harm everyone in the country, or even in the world!

These are some of the reasons why, no, corporations are not really "centrally planned," and certainly not planned in the way a planned economy is planned. Millions of people, from "high-flying" owners, CEOs, and board members to assembly-line workers and line managers who observe the production process and write reports to people who have to read them and make judgments, to the very consumer on the street who has to decide between parting with their limited cash for the wonderful blue widget or the sensational red doohickey, or the tremendous purple whatchamacallit which combines some of the features of both, all contribute feedback to the plan. The plan is eternally optimized in light of the feedback mechanism of profit and loss, which allows the producer to meet the needs of the consumers in a mutually beneficial fashion, and on a basis of voluntary adoption of services. No such optimization is available to government officials, who do not acquire the funds directly, through meeting people's needs, but through the tax system, independently of the performance of their plans. They have to "best guess" how to allocate precious resources, without access to any objective data on what works and what doesn't work when tested against other potential solutions.

This is a good objection, though, because it is clever, and allows us to shine a light upon why exactly markets work, and why centrally planning services has always—and will always—fail. It's not because we just didn't elect good enough planners in the past; it's because planning without the feedback mechanisms of the market is an impossible task.

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The Never-Ending Battle between Leviathan and Liberty

Posted: 24 Mar 2021 07:00 AM PDT

Few political follies are more hazardous than presuming that one's liberties are forever safe. If liberty is God's gift to humanity, then why were most people who ever lived on Earth denied this divine bequest?

Original Article: "The Never-Ending Battle between Leviathan and Liberty"

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

 

They Said Things Would Be Much Worse in States without Lockdowns. They Were Wrong.

Posted: 24 Mar 2021 07:00 AM PDT

When Georgia and Florida scaled back covid restrictions, the experts predicted far more death in the "open states" than in the locked down states like New York and California. The numbers tell a different story.

Original Article: "They Said Things Would Be Much Worse in States without Lockdowns. They Were Wrong."

This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

 

Money Isn't Neutral: Why Economic Stabilization Schemes Are Counterproductive

Posted: 24 Mar 2021 04:00 AM PDT

For most commentators economic stability refers to an absence of excessive fluctuations in key economic data such as real gross domestic product (GDP) and the consumer price index (CPI).

An economy with constant output growth and low and stable price inflation is likely to be regarded as stable. An economy with frequent boom-bust cycles and variable price inflation would be considered as unstable.

According to popular thinking stable economic environment in terms of stable price inflation and a stable output growth acts as a buffer against various shocks. This makes it much easier for businesses to plan. In this way of thinking in particular, price level stability is the key for economic stability.

For instance, let us say that a relative strengthening in consumer's demand for potatoes versus tomatoes took place. This relative strengthening is depicted by the relative increase in the prices of potatoes versus tomatoes.

To be successful businesses must pay attention to consumers' demands—failing to do so is likely to lead to losses. Hence, in our case businesses, by paying attention to relative changes in prices, are likely to increase the production of potatoes versus tomatoes.

In this way of thinking, if the price level is not stable, then the visibility of the relative price changes becomes distorted and consequently, businesses cannot ascertain the relative changes in the demand for goods and services and make correct production decisions.

This leads to a misallocation of resources and to the weakening of economic fundamentals. In this way of thinking, unstable changes in the price level obscure businessperson's ability to ascertain changes in the relative prices of goods and services. Consequently, businesses will find it difficult to recognize a change in relative prices when the price level is unstable.

Based on this way of thinking, it is not surprising that the mandate of the central bank is to pursue policies that will bring price stability, i.e., a stable price level.

By means of various quantitative methods, the Fed's economists have established that at present policy makers must aim at keeping price inflation at 2 percent. Any significant deviation from this figure constitutes deviation from the growth path of price stability.

The Assumption of Monetary Neutrality Is at the Root of Price Stabilization Policies

At the root of price stabilization policies is a view that money is neutral. Changes in money only have an effect on the price level while having no effect on the real economy.

For instance, if one apple exchanges for two potatoes, then the price of an apple is two potatoes or the price of one potato is half an apple. Now, if one apple exchanges for one dollar then it follows that the price of a potato is $0.5. Note that the introduction of money does not alter the fact that the relative price of potatoes versus apples is 2:1. Thus, a seller of an apple will get one dollar for it, which in turn will enable him to purchase two potatoes.

Let us assume that the amount of money has doubled and as a result, the purchasing power of money has halved, or the price level has doubled. This means that now one apple can be exchanged for two dollars while one potato for one dollar. Note that despite the doubling in prices a seller of an apple with the obtained two dollars can still purchase two potatoes.

In this way of thinking, an increase in the quantity of money leads to a proportionate increase in the price level. While a fall in the quantity of money results in a proportionate decline in the price level. All that, according to this way of thinking, does not alter the fact that one apple is exchanged for two potatoes, all other things being equal. Why this way of thinking is problematic?

Changes in Money Supply Cannot Be Neutral

When new money is injected there are always first recipients of the newly injected money who benefit from this injection. The first recipients with more money at their disposal can now acquire a greater amount of goods while the prices of these goods are still unchanged.

As money, starts to move around the prices of goods begin to rise. Consequently, the late receivers benefit to a lesser extent from monetary injections or may even find that most prices have risen so much that they can now afford fewer goods.

Increases in money supply lead to a redistribution of real wealth from later recipients, or nonrecipients of money to the earlier recipients. Obviously, this shift in real wealth alters individuals' demands for goods and services and in turn alters the relative prices of goods and services.

Increases in money supply set in motion new dynamics that give rise to changes in demands for goods and services and to changes in their relative prices. Hence, increases in money supply cannot be neutral as far as relative prices of goods are concerned.

A change in relative demands here is on account of real wealth diversion from last recipients of money to the early recipients. This change in relative demands cannot be sustained without ongoing increases in the money supply growth rate. Once the growth rate of money supply slows down or declines all together various activities that emerged on the back of this increase in the money supply are coming under downward pressure.

It follows then that an increase in the growth rate of money supply gives rise to changes in relative prices, which set in motion an unsustainable structure of production. The outcome of all this is going to be the misallocation of resources and the economic impoverishment.

Hence, the Fed's monetary policy that aims at stabilizing the price level by implication affects the growth rate of money supply. Since changes in money supply are not neutral with respect to relative prices of goods and services, this means that a central bank policy amounts to the tampering with relative prices, which leads to the disruption of the efficient allocation of resources.

Observe that while increases in money supply are likely to be revealed in general price increases, this need not always be the case. Prices are determined by real and monetary factors.

Consequently, it can occur that if the real factors are pulling things in an opposite direction to monetary factors, no visible change in prices might take place. While money growth is buoyant prices might display moderate increases.

Clearly, if we were to pay attention to changes in the price level and disregard increases in the money supply, we would reach misleading conclusions regarding the state of the economy.

On this, Rothbard wrote in America's Great Depression,

The fact that general prices were more or less stable during the 1920s told most economists that there was no inflationary threat, and therefore the events of the great depression caught them completely unaware.

The Price Level Cannot Be Ascertained Conceptually

Furthermore, the whole idea of the general purchasing power of money and therefore the price level cannot be even established conceptually.

When one dollar is exchanged for one loaf of bread, we can say that the purchasing power of one dollar is one loaf of bread. If one dollar is exchanged for two tomatoes, then this also means that the purchasing power of one dollar is two tomatoes. The information regarding the specific purchasing power of money does not however allow the establishment of the total purchasing power of money.

It is not possible to ascertain the total purchasing power of money because we cannot add up two tomatoes to one loaf of bread. We can only establish the purchasing power of money with respect to a particular good in a transaction at a given point in time and at a given place.

On this Rothbard wrote in Man, Economy, and State, 

Since the general exchange-value, or PPM (purchasing power of money), of money cannot be quantitatively defined and isolated in any historical situation, and its changes cannot be defined or measured, it is obvious that it cannot be kept stable. If we do not know what something is, we cannot very well act to keep it constant.

Summary and Conclusion

For most commentators, the key to healthy economic fundamentals is price stability. A stable price level, it is held, leads to the efficient use of the economy's scarce resources and hence results in better economic fundamentals. It is not surprising that the mandate of the Federal Reserve is to pursue policies that will generate price stability.

By means of monetary policies that aim at stabilizing price level the Fed actually undermines economic fundamentals. An ever-growing interference of the government and the central bank with the working of markets moves the US economy towards the growth path of persistent economic impoverishment and drastically low living standards as time goes by.

What is required is not a policy of economic stability but rather allowing free price fluctuations. Only in an environment free of government and central bank tampering with the economy can free fluctuations in relative prices take place. This in turn will permit businesses to abide by consumers' instructions.

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