Ludwig von Mises Institute
At our Dallas-Ft. Worth Mises Circle, we discussed the dangers of authoritarian PC culture and the infantilization of American universities. This past week, this issue was driven to the forefront of national conversation. Cheered on by their absurdly leftist professors, we have watched a movement sparked by claims of racial intolerance devolve into petulant demands for more free stuff and explicit attacks on free speech. If there is a silver lining, hopefully these campus demonstrations will awaken more people to the importance of eliminating the state from education altogether.
Dr. Thomas DiLorenzo joined Jeff Deist this week to discuss what is happening on American campuses today. DiLorenzo shares his experiences from behind enemy lines in leftist academia. Are Americans waking up to the decaying state of modern universities?
In case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:No, the Military Has Not Withered Away Under Obama by Ryan McMakenPope Francis Contradicts Himself on Religious Liberty and Capitalism by Roy CordatoSocial Security: The Long Slow Default by Kirby CundiffFour Ways to Build a Free Society by Jeff DeistWhen You're Popular, You Don't Need Freedom of Speech by Andrew Syrios"There, There, Work With Us, And We'll Cut You In" by Hunter LewisSummer Fellowships: Excellent Research Opportunity by Jonathan NewmanAcademic Welfare Queens by Tho BishopWorld War I as the Triumph of Progressive Intellectuals by Murray RothbardNew York State Bans Fantasy Football by Mark ThorntonThe War on Cash Grows More Painful by Joseph SalernoCalifornia and New York Are Poorer than You Think by Ryan McMakenCan You Find the Crisis? by Carmen Elena DorobățGovernment Shutdown Averted: Record-Breaking Spending to Continue by Ryan McMakenTry The New Mises Boot Camp!
It is common to see articles and columns in the Conservative media claiming that President Obama is engaging in “historic defense cuts.” There are claims that not in decades has the military ever endured such budget slashing. “Romney blasts Obama over military cutbacks” one headline blares.
Upon closer examination of these claims, one notes that the authors are careful to never mention actual dollar amounts in context, or any meaningful historical context beyond single recent year-over-year comparisons.
Most of these stories are careful to only mention military spending on certain projects, and never military spending as a whole. They look at troop numbers and other measures that don’t reflect total military spending.
And it’s not surprising that total military spending is never mentioned. Because, if it were, it would quickly become apparent that military spending is in fact near historic highs, and above the levels of spending that occurred under Ronald Reagan during his own Cold War buildup.
So, if you are worried about military spending, you can rest easy. Nor is there any cause for alarm in the wake of the most recent budget deal approved by Republican leaders and Obama. There will be nothing but budget increases over the next two years:
The plan will lift caps on the appropriated spending passed by Congress each year by $50 billion in 2016 and $30 billion in 2017, evenly divided between defense and domestic programs. Another approximately $16 billion would come each year in the form of inflated war spending, evenly split between the Defense and State departments.
So, not only will there be more base-level defense spending, but what is currently in the agreement can also be voided in favor of even more defense spending in case of new wars.
Even if there were “cuts” on the table, its unlikely military spending would be cut back to Cold War levels, let alone to Vietnam War-era levels. Here is military spending (excluding spending on veterans, diplomatic programs, and Homeland Security) in constant 2009 dollars:Source: Office of Management and Budget, Table 8.2
Current estimates of 2015 spending put the total at $578 billion, which is equal to 2014’s total. While it is true that this puts spending below the record-breaking post-1945 high of $686 billion that occurred in 2010 and 2011, current defense spending remains up 41 percent from 2001 levels (i.e., pre 9/11). The total also remains up 7 percent from the Cold War peak of $538 billion reached in 1989.
But this graph only tells part of the story. As I explained here in response to last year’s estimates, defense spending analysis must include veterans benefits, which are crucial in meeting recruitment goals in the military and are an integral part of active-duty personnel costs. Thus, current VA spending is just spending deferred from previous military operations. They are not in any meaningful way separate from defense spending.
Moreover, since 2002, the federal government has folded several programs under “Homeland Security” that are defense expenditures, but not part of the Department of Defense. If we include these other forms of defense spending, we find national defense spending has increased even more than initially thought:Source: Office of Management and Budget, Table 4.1
In both of these graphs, I have excluded “international affairs” spending such as dollars spent on foreign aid and embassies. So, I’m low-balling total spending here.
In the second graph, we see that total defense spending is estimated to be $711 billion in 2015, compared to $721 billion in 2014. That’s a decline of 1.2 percent, year-over-year. But total spending remains up 68 percent over 2001 levels, and up 22 percent over the Cold War peak year in 1986.
In spite of this, Conservative and Republican pundits have attempted to portray President Obama as some sort of peacenik. This has never been true, and it is reflected in the government spending initiatives he has approved.
For example, during the eight years of George W. Bush’s presidency (2001 through 2008), the federal government spent $4.7 trillion on defense. During the seven years of the Obama years, from 2009 through 2015, the federal government spent $5.3 trillion. Obama still has another year to go. (Ronald Reagan’s federal government spent $3.7 trillion on defense from 1981 to 1988).
In spite of all of this, we’re being told by advocates for more government spending that the military is withering away just as the world becomes more dangerous than ever before. We’re supposed to believe, for example, that things are more dangerous now than they were in, say, 1949, when the Soviet Union acquired its own atomic bomb and began to build a nuclear arsenal. At the time, US military spending was under $60 billion dollars (in 1982 dollars), or about one-quarter the size of the spending under Reagan.What Would Eisenhower Do?
In spite of claims that the US is currently engaging in “historic” cuts, today’s anemic military reductions have a long way to go to match the military reductions put in place by Dwight Eisenhower during his administration.
As David Stockman has noted, Eisenhower, perhaps because of his status as a revered military figure, was able to get away with large cuts to military spending:
Eisenhower ... did not hesitate to wield the budgetary knife. When he did so, the blade came down squarely on the Pentagon ...
With Eisenhower’s blessing, the budget request inherited from Truman was slashed by nearly 30 percent, with more cuts targeted for future years ...
Although defense spending never did shrink all the way to Ike’s target, the wind-down of Truman’s war budget was swift and drastic. When measured in constant 2005 dollars of purchasing power, the defense budget was reduced from a peak of $515 billion in fiscal 1953 to $370 billion by fiscal 1956. It remained at that level through the end of Eisenhower’s second term.
Robert Higgs, in his analysis of defense spending, has used different calculations, but here also we see a decline of 23 percent from 1953 to 1956:Source: “US Military Spending in the Cold War Era” by Robert Higgs
By the way, in 1953, right before Eisenhower began to intensify military cuts, the Soviet Union publicly tested its first hydrogen bomb, a 400-kiloton device.
Even though Democrats charged that Eisenhower and Humphrey were “allowing their Neanderthal fiscal views to endanger the national security,” the actual record proves the administration’s drastic rollback of Pentagon spending was not based merely on penny-pinching. Instead, it flowed from a reasoned retrenchment of the nation’s national security strategy called the “New Look.”
The new policy doctrine of the Eisenhower administration called for a sharp reduction in land and naval forces. That move was coupled with a significantly increased reliance for nuclear deterrence on the air force bomber fleet and the rapid development of intercontinental ballistic missiles.
In other words, by cutting back on the standing army, Eisenhower abandoned the ability to invade and occupy foreign countries in favor of a less expensive military based more heavily on nuclear deterrence.
Not even Eisenhower was immune to charges of being a communist sympathizer, but we can be sure that if any president today attempted anything similar to what Eisenhower attempted, he would be immediately denounced as a terrorist and collaborator.
And, naturally, we have every reason to believe that, regardless of who the president is, military spending will spike again the next time a president mobilizes for a new war, whether it’s in Ukraine, Syria, or some other exotic location where we will be assured that the absolutely vital interests of the US are in grave danger.
While visiting the White House on his first day in the United States this year, Pope Francis made a strong plea on behalf of religious liberty, which he pointedly directed at President Obama. This came shortly before he made an unscheduled visit with the Little Sisters of the Poor, who are suing the Obama administration over their own right not to include artificial contraception as part of their health insurance plan, which is mandated by Obamacare regulations. Catholic teaching views the use of artificial contraception as sinful. The connection between his comments to the president and his visit with the Little Sisters was apparent.
This laudable and welcome stance comes from a Pope who has, out of a concern for the poor, famously made several misguided statements that are quite critical of capitalism. Combined, these two positions, while seemingly unrelated, represent a profound contradiction in the Pope’s thinking.
In reality, the only socio-economic arrangement that guarantees the rights of all people to exercise their religious beliefs freely is free market capitalism, which emphasizes the rights of people to own and use property as they wish and to contract freely with others on any mutually agreeable terms.
It is a system that is based strictly on voluntary cooperation and that de-legitimizes the use of force and fraud. (As an aside, I personally think that, for this reason, it is the system most consistent with Christianity.) Under such institutional arrangements, there would be no need for specific legal or constitutional protections for religious liberty. These liberties are inherent in the system itself.
Consider, for example, the contraception mandate that is being challenged by the Little Sisters of the Poor. This directly conflicts with one of the most basic rights under capitalism: the right to trade and make contracts freely with others.
Under laissez-faire, or as some are calling it, “unfettered” capitalism, what is covered by any health insurance policy purchased by the Little Sisters of the Poor would be a private matter among the Little Sisters, their insurance company, and possibly any employees who would also be covered under the plan.
If the health insurance plan that was being offered by the insurance company was unacceptable to the Little Sisters, for whatever reason, they would be free to walk away from it or negotiate different coverage with the insurance company. And if the health insurance offered by the Little Sisters to any of their employees were an unacceptable part of their compensation package, they too would be free to walk away and find employment elsewhere or forgo the employer-provided insurance and purchase a separate plan of their own choosing. This might occur as part of an exchange with the Little Sisters, their employers, for a higher wage. All of this would happen without a need for any specific discussion about religious liberty. The Little Sister’s religious freedom and their freedom to make mutually agreeable contracts are one in the same.
Beyond this the right to worship as one chooses would be pretty hollow without the right to own or contract for the rental of physical property. The right to worship implies the right of a religious organization to have physical space to assemble and to worship in that space as they see fit. Without this fundamental property right, which is only guaranteed without question under capitalism, the right to worship freely as one chooses is tentative at best and nonexistent at worst.
The right to deny religious liberties stems from the power of government to deny the right to use property freely. When the USSR wanted to shut down the Catholic Church in Ukraine it confiscated its property, i.e., the churches. The Soviets understood quite well that the right to freely worship was the right to freely own.
This does not end with religious liberties. Indeed, property rights and free exchange are at the heart of one’s ability to exercise civil liberties more generally. The right to freedom of speech and press and the rights to freely assemble, protest, boycott, etc., are all automatically guaranteed under capitalism.
This is because capitalism guarantees our right to disagree with one another, which is really what is being protected when all of these liberties are recognized. In this regard it would be useful for Pope Francis to pay attention to the words of a rather famous atheist, Ayn Rand, who noted that:
The right to agree with others is not a problem in any society; it is the right to disagree that is crucial. It is the institution of private property that protects and implements the right to disagree.
Holy Father, religious liberty is nothing more than the right to disagree.
When an investor buys an annuity or another retirement product from an insurance or mutual fund company, the contract is constant and enforceable through the United States court system. When a United States taxpayer is forced to pay for a government backed retirement system such as the Old-Age, Survivors, and Disability Insurance program (OASDI) — also known as Social Security — the “contract” can be, and is, changed on a regular basis by the United States government, and those changes are generally not to the benefit of the taxpayer.
Participation in the Social Security system became compulsory in 1935 and the first monthly retirement checks were issued in 1940. The first monthly check was issued to Ida May Fuller of Ludlow, Vermont. She had paid approximately $25 into the Social Security system and received over $22,000 in benefits from the system due to living to 100 years of age. The other early retirees of the Social Security system on average also did very well. Retirees in 1977 are estimated to have received seven times what they paid into the Social Security system. Retirees entering the program as recipients today will probably receive a negative return on their “investment.”The “Primary Insurance Amount”
The way that Social Security benefits are calculated is complicated, and can, of course, be modified at any time.
The amount of monthly income a Social Security enrollee receives is called the Primary Insurance Amount. The current Primary Insurance Amount (PIA) benefit formula was created in 1979 and is based on two “bend points.”
For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2015, his PIA will be the sum of:
(a) 90 percent of the first $826 of his average indexed monthly earnings (AIME), plus,(b) 32 percent of his average indexed monthly earnings (AIME) over $826 and through $4,980, plus,(c) 15 percent of his average indexed monthly earnings (AIME) over $4,980,
where the Average Indexed Monthly Earnings (AIME) is currently the average of the Social Security recipients top thirty-five years of income during his lifetime divided by 12.
Significantly, each year’s monthly income is expressed in 2015 dollars using the Consumer Price Index (CPI).Benefit Cuts Since the 1970s
By the late 1970s, it became obvious that the Social Security system was going to have significant solvency problems since the ratio of workers to retirees decreased from around 40-to-1 in 1945 to around 3-to-1 in 1980, and most of the money paid into the system had been spent on other government programs.
Payroll taxes were therefore increased, and a series of changes were made to the Primary Insurance Amount (PIA) payment formula to cut the benefits that Social Security enrollees would receive.
The PIA formula before 1979 was even more complicated than the one used in 2015. It had ten bend points, but gave more credit to high income workers. According to Robert J. Myers in his book Social Security, the changes in the benefit formula in 1979 resulted in, on average, a 7 percent reduction in monthly Social Security payments for new retirees. Under that current benefit formula, if a Social Security enrollee has a life-time income over $2 million, he will very likely have a negative return on his investment. For lifetime incomes between $0.5 million and $2 million, the enrollee has a chance to break even. Enrollees with a lifetime income less than $0.5 million have a good chance of still benefiting from the Social Security system. The number of years included in the earnings base (the number of years of income averaged to determine the monthly benefit payment) was gradually increased from twenty-three years, for people born in 1917, to twenty-nine years for people born in 1923 to thirty-five years, for people retiring in 2015.
For mothers who took time off from their career, people who spent a long time in graduate school, and people whose income was much larger during later parts of their life, this resulted in a significant decrease in benefits. (See The Social Security Book by Jack and Erwin Gaumnitz.)Using the CPI to Keep Payments Down
Since the 1970s, the AIME used to determine the PIA has been indexed using the Consumer Price Index (CPI). So the higher the CPI, the larger a recipient’s monthly Social Security benefits will be. Social Security benefits for current retirees are also increased annually by the CPI. This means that one way the government can lower benefit payments is by under-estimating the inflation rate. The Bureau of Labor Statistics (BLS) has redefined how the CPI is calculated several times since the 1980s, lowering the CPI in each case. According to economists at Shadow Government Statistics, the CPI currently underestimates the inflation rate by at least 4 percent per year. If this is the case, Social Security recipients receive a 4 percent reduction in their buying power each year.“Mini-Defaults” in the Social Security System
The US government knows it cannot keep up its end of the original Social Security bargain. So, to address its insolvency issue, the federal government simply responds by reducing benefits while increasing taxes. Increasing the retirement age, for example, is an easy way to reduce benefits.
The retirement age was increased from sixty-five for those born in 1937 or before to sixty-seven for those born in 1960 or after. Since enrollees do not get maximum benefits until age seventy, it could be argued that seventy is really the current full retirement age.
The taxable earnings base (the maximum income that is subject to Social Security taxes) and Social Security tax rates have increased drastically since the system was first created. The taxable earnings base was $3,000 in 1937, $25,900 in 1980, and $118,500 in 2015. The Old-Age and Survivors Insurance (OASI) tax was 2 percent in 1937, 9.04 percent in 1980, and 10.98 percent in 2015. This number includes both the employer and employee portion. When the 1.42 percent Disability Insurance tax and the 2.9 percent Medicare tax is added, the total payroll tax is currently 15.3 percent.
In 1983, legislation was passed to tax Social Security benefits for the first time. Currently, if a taxpayer’s provisional income is more than $25,000 on a single return or $32,000 on a joint return, their Social Security benefits will be taxed at between 50 percent and 85 percent of their normal tax rate.Further Tax Increases and Benefits Cuts are Likely in the Near Future
According to the Social Security Administration, by 2033 future payroll taxes will only cover around 77 percent of estimated benefits. It is therefore likely that even further benefit cuts and tax increases will occur in the near future. Increasing Social Security tax rates from 12.4 percent to 15.5 percent and eliminating the taxable maximum (i.e., making all income subject to Social Security taxes) is currently being considered. Other tax increases being proposed include taxing contributions to flexible spending accounts and creating a national Value Added Tax (VAT).
Further cuts to Social Security benefits are also on the table. Proposals to cut benefits include increasing the retirement age from sixty-seven to seventy years, increasing the number of years included in the earnings base from thirty-give to thirty-eight or forty, and increasing the percentage of Social Security benefits that are subject to income taxes. Redefining the CPI index to further underestimate the inflation rate is also on the table.
Social Security has long been sold to the public on the notion that what a worker will receive back is what he or she pays into the system. For decades, however, the government has been changing the terms of this “agreement” as part of an effort to avoid outright default. This long, slow method of piecemeal default, however, is likely to continue.
This article is adapted from a talk delivered at this past weekend's Mises Circle event in Phoenix.
The topic of our symposium this morning is “What Must Be Done,” which originally was the title of a talk given by Dr. Hans-Hermann Hoppe at a Mises Institute conference in 1997. Hoppe posed his title as a declarative, but it's also the question we all wrestle with as libertarians in a world so dominated by the state and its apologists.
And it’s a question we hear time and time again at the Mises Institute: What can we do to fight back against government? We all understand the problem, but what is the solution? What can we do in the current environment to help build a more sane and libertarian world? And how can we find some measure of freedom in our lives today, to live more freely in our lifetimes?Four Common Strategies
When libertarians talk about what must be done, the discussion tends to revolve around four common strategy options. None of them are mutually exclusive necessarily and there can be plenty of overlap between them.1. The Political Option
The first, we’ll call the political option, or to borrow a tired phrase, “working within the system.”
The argument goes something like this: government, and the political process that surrounds it, are inevitable in the real world. Therefore libertarians must not stand idly on the sidelines while politicians inexorably steal our freedoms. Instead we must organize and become active politically, under the banner of a third party vehicle like the Libertarian Party or by working within the Republican Party, because whether we want to involve ourselves with politics, politics involves itself with us.
Political action can be viewed as a form of self-defense. This approach usually has a national focus — such as running a presidential candidate — though it contemplates political action at the state and local level as well. It appeals to libertarians in a hurry, so to speak. Ultimately, at least in theory, the political option attempts to mimic and reverse the incrementalism that has been so successful for the political Left over the past century.
Let me say that the political option, at least in terms of national politics, strikes me as the least attractive alternative among those available to us today.
The amount of time, energy, and human capital that have been invested trying to win political and legislative battles is staggering, but what do we have to show for it? The twentieth century represents the total triumph of Left progressivism in the political sphere: central banking, income taxes, the New Deal, and Great Society entitlement schemes were all enormous political victories that changed the landscape forever. Everything has become politicized: from what bathroom transgender people should use to whether online fantasy football should be allowed. Progressives frame every question as “What should government do?”
So we need to understand the political option within the context of the progressive triumph.2. Strategic Withdrawal
A second approach libertarians often consider might be loosely termed strategic withdrawal. You may have heard of the “Benedict option” being discussed by Catholics unhappy with the direction of the Church and the broader culture. Ayn Rand fans talk about “going Galt,” in reference to the strike by the productive class that takes place in Atlas Shrugged.
This approach involves separating, withdrawing, or segregating in some way from the larger society and political landscape. It asserts that the current environment is largely hopeless for libertarians politically and culturally, and therefore attempting to play the game where the rules are so heavily slanted in favor of the state is foolish.
It’s better to retreat, at least for now, and build a life outside the state’s parameters to the extent possible. In this sense the withdrawal option is tactically appealing: like certain martial arts, it attempts to deflect and redirect a greater force, rather than face it head on.
A strategic withdrawal can take many forms across a range of alternatives, from absolute separation to quite subtle lifestyle changes. In some cases this strategy can mean actually physically uprooting where one lives and works. We have examples like the Free State Project in New Hampshire or Liberland in Europe, along with various seasteading proposals and attempts to create libertarian homesteads in Central and South America.
But withdrawal can take other forms. Some libertarians choose to live off the grid, both literally and metaphorically. The prepper movement represents a form of strategic self-sufficiency, as does simply choosing to move to a rural or remote area.
Withdrawing from the American way of endless consumption and debt — “living small” — offers another form of strategic retreat, and often allows libertarians not only to lead happier lives, but also minimize or avoid the state’s regulatory and tax clutches.
Of course, homeschooling represents one of the greatest examples of libertarian strategic withdrawal in the modern age, enabling millions of kids and parents to escape the state education complex. And withdrawal can be as simple as abandoning state media or unplugging from the digital white noise that surrounds us.
Finally, expatriation — voting with one’s feet — is a time-honored historical strategy for removing oneself from a tyrannical state. This happens domestically in the US, with people fleeing high tax states, as well as across borders. I’m sure many people in this room have at least considered leaving the US, and increasing numbers of Americans are not only doing just that, but renouncing their citizenship as well. Who could judge a young person today who looks around and decides to leave the US for greener, or freer, pastures?3. Hearts and Minds
A third tactic that libertarians often advocate we might call “winning hearts and minds.” This approach is multi-pronged, involving education, academia, traditional and social media, religion, books and articles, literature, and even pop culture. Hearts and minds is why we hold conferences like this. The hearts and minds strategy is all about education, persuasion, and marketing, at every level. And it’s the approach through which I think the Mises Institute has made the most headway.
A hearts and minds strategy argues that no change can occur unless and until a significant portion of a given population shrugs off its bad ideas and embraces sensible ideas, particularly in the areas of politics, economics, and social theory. Politics is a lagging indicator, and it follows downstream from culture. We should focus on the underlying disease, not the symptoms. Just as Left progressives have captured the institutions of the West — academia, news media, government, churches, Hollywood, publishing, social media — libertarians ought to focus our efforts on reclaiming these institutions for liberty and a brighter future. So it makes sense to launch liberty-minded people into the streams of academia, business, media, and religion. This is how we strike the root, or at least chip away, at the mindset that supports the state.
Clearly a wholesale attack on these institutions is a daunting task. It’s a long game. But the argument goes like this: until we win hearts and minds, it scarcely matters whom we elect, what bill gets passed, or how we arrange our personal and professional lives. The same statist mentality will surface time and time again to work against us.
Surely the state’s education racket offers the ripest target for this approach. As public schools deteriorate into mindless PC zones, and as universities continue to produce heavily indebted graduates with uncertain job prospects, it becomes increasingly obvious to the public that the whole model is unsustainable.
That’s why we have an opportunity like never before to appeal directly to the intelligent lay audience, and bring Austrian economics and libertarian theory to the masses at very little cost. The digital revolution has been the great leveler, and we should use it to its full advantage in changing as many hearts and minds as possible.
But this strategy is not for the faint of heart, and it doesn’t promise a quick fix. It’s a strategy for sober people with long time horizons.4. Resistance
Of course another strategy often discussed among libertarians involves simple resistance to the state, whether open or covert. This tactic contemplates actions like civil disobedience, tax protests, evading or ignoring regulations, and engaging in agorism and black markets.
It also contemplates the use of technological advances to advance freedom. “Third way” libertarian technologists promote this approach, citing advances like encryption, cybercurrencies, and platforms like Uber — all of which when first developed existed in a sort of grey area as regards their legality.
Agorism was the preferred approach of the late libertarian theorist Sam Konkin, who encouraged people to bypass the state by devoting their economic lives to black-market or gray-market activities, thus avoiding taxation and regulation and helping to shrink the beast. Konkin called it “counter-economics.”
Agorism and its variants was critiqued by Murray Rothbard, who found Konkin’s antipathy to wage labor and “white markets” as anti-market: after all, what does agorism offer the vast majority of wage workers? And who will provide “legitimate” goods and services like automobiles and steel? Rothbard saw agorists as “neglecting the overwhelming bulk of economic life to concentrate on marginalia.”
And let’s be frank: the notion of living an agorist’s life in the shadows, without, for example, having a driver’s license or owning real estate, might not hold mass appeal.
As for applying new technology to bypass the state, I’m all for it. Any innovation that makes it harder for the state to govern us, as a practical matter, is something to be celebrated. But we should guard against false hope: the same technology which serves to facilitate privacy or title transfers or stealth movement of money or people can be exploited by the state’s spying apparatus. And no innovation can change the fundamental questions of whether and how human affairs should be organized by the state.Hoppe’s Revolution
So these four basic approaches — politics, withdrawal, “hearts and minds,” and resistance — provide us with a framework to consider, in an unfree world, what must be done.
These questions bring us back to Professor Hoppe and his aforementioned speech. I encourage you to read it, it’s a fascinating topic and his treatment of it is razor-sharp.
Keep in mind that when Hoppe delivered his talk in 1997, the digital revolution was still in its infancy. Social media and mobile devices did not exist. Several precipitating events — the introduction of the euro, the September 11th attacks, the wars in Iraq and Afghanistan, the Crash of 2008, Greenspan and Bernanke’s monetary hyperdrive, the rise of Obama, and the full contagion of PC in the West — had not yet occurred.
Each of these events intensified the growth and scale of centralized government power. But even in what now seems like the carefree year of 1997, Hoppe’s explicit focus was the fundamental fight against any and all centralized political power.The Problem of Centralization
And, in fact, decentralization is a linchpin that connects each of the four tactical approaches mentioned earlier. If there is one principle, and only one principle, that libertarians ought to apply when considering strategy, it is this: radical decentralization of state power must be our relentless goal.
The twentieth century, the Progressive century, witnessed the unprecedented centralization of political and economic power in the hands of the political class. We see this in Washington DC, in Brussels, at the UN, at the Fed, at the European Central Bank. Our overriding goal therefore must be the reversal of this terrible trend to create a critical mass of “implicitly seceded territories.”
Hoppe prescribes a bottom up strategy that identifies natural elites not found among the political class, its court intellectuals, or its state-connected allies. These elites are simply accomplished, upstanding local citizens. These natural elites form the counterbalance to the parasitic centralizers, and serve as the vanguard of the bottom up revolution.
Hoppe’s posits three strategic keys for this revolution:First, protection, defense, and justice must be de-monopolized. These are the very areas — policing, courts, armies — where libertarians often falter in their advocacy of a truly private society. But here we must be steadfast: if these functions remain under the sole power of a central state monopoly, no progress toward liberty is possible. We can’t trust the state with guns, lawyers, and jails.Second, political decentralization must be ruthlessly pursued, and here Hoppe makes the case that voting on local matters can be morally justified on grounds of self-defense.Third, democracy as a concept must be attacked and ridiculed whenever possible. Private property forms the basis for a free society, while majority rule — i.e., the system that permits the theft of private property — forms the antithesis of a free society.Conclusion
Let me conclude with a quote from Rod Dreher, writing in The American Conservative about the Benedict option I mentioned earlier:
Rome’s collapse meant staggering loss. People forgot how to read, how to farm, how to govern themselves, how to build houses, how to trade, and even what it had once meant to be a human being.
Has the world fallen so far into reflexive statism that we have forgotten how to be free? Are we living, like Benedict says, on the edge of a new dark age? Or is a revolution, a radically decentralized Hoppean “bottom up” revolution brewing? Is the pushback we see all around the world — against central states and their cobbled together borders, against political elites, against the UN and the IMF, against the euro, against taxpayer bailouts, against cronyism, against PC, against manufactured migration, and against drug laws, a last gasp? Or the sign of worldwide movement toward political decentralization?
Finally, let us remember that every society worth having, every advanced liberal society, was built by people with long time horizons. Horizons beyond their own lives. And generally those societies were built under very difficult circumstances and conditions of material hardship far beyond what we’re likely to face. So let’s appeal to our better natures and turn “What Must be Done” from a question into a declaration.
Free speech is not something that people would normally see as a realm of economics, but in many ways, an economic understanding of the support and opposition to free speech can shed a lot of light on what’s happening now in the West.
The first thing that needs to be noted is that the left is winning the culture war. Even though more people identify as “conservative” than “liberal” in the United States, more people now identify as “liberal” than in the past by a substantial margin. Attitudes toward gay marriage shifted extremely quickly toward the left while support for legal abortion stayed mostly steady. And obviously the media, academia, and Hollywood are far to the left as a study by the non-partisan political analytics firm Crowdpac found (and as anyone who watches anything other than Fox News can tell after about five minutes).
Now, some of this is certainly good, such as the shifting views on marijuana legalization. Some is troubling, such as the growing popularity of socialism.
Regardless though, the left, having ascended to cultural dominance, is no longer in need of free speech. After all, no one ever got in trouble for agreeing with the conventional wisdom. As Noam Chomsky said, “Even Goebbels was in favor of free speech he liked.”
On the other hand, the right is behind the eight ball in the culture wars and thereby supports the concept of free speech because they need it lest their very opinions be outlawed. In an economic sense, this could be called the “diminishing marginal utility of free speech.”
The law of diminishing marginal utility states that while keeping consumption of other products constant, there is decline in marginal utility that a person derives from consuming an additional unit of that product. In this case, the product is free speech. New leftists may have proposed unfettered free speech back in the early 1960s, but that was just because the right was the one in power culturally at the time. Free speech had a high utility to the left at the time and low utility to the right.
Now the situation has reversed. The right is at the disadvantage so it appeals to free speech. The left is ahead and no longer needs free speech, so it has discarded it.
If that statement sounds hyperbolic, just think of all of the campus speech codes and the ever expanding list of mostly trivial microagressions that can be taken for “hate speech.” Here is just a small sampling of examples to illustrate how absurd this has become:Brendan Eich was forced to resign as CEO of Mozilla after a massive backlash for having opposed gay marriage.A candidate in the European elections was arrested in Britain for quoting a passage from Winston Churchill about Islam.Gert Wilders, a politician in the Netherlands, was tried on five counts including “criminally insulting Muslims because of their religion.”Conservative radio host Michael Savage was banned from the airwaves in Britain.Both Mark Steyn and Ezra Levant were dragged in front of the Canadian Human Rights Commission on charges of being “Islamophobic.”A man was fired because someone eaves dropped on his joke about dongles and caused a fuss about it on social media.A group called Color of Change applied enough pressure to get Patrick Buchanan fired from MSNBC for expressing politically incorrect opinions in his book Suicide of a Superpower.The “Pickup Artist” Julien Blanc was barred from entering Britain for making sexist comments.A student at Purdue University was found guilty of “racial harassment” for reading (yes, reading) a book called Notre Dame Vs the Klan in which — it should be noted — the Klan is the bad guy.
Indeed, the list goes on endlessly, and is perhaps best summed up by the almost unconscionable lack of self-awareness required by University of Manchester feminists who recently censored the anti-feminist columnist Milo Yiannopoulos from participating in a debate on — you guessed it — censorship.
Of course much of this is just social pressure or the decisions of private institutions, which is permissible (albeit not condoned) under a libertarian framework. But much of it does involve outright government force, or the longing to use it. For example, Adam Weinstein wants to literally “Arrest Climate-Change Deniers.”
Indeed, while many believe that the youth of today are the most politically tolerant in history, they are actually the least. As April Kelly-Woessner notes, “political tolerance is generally defined as the willingness to extend civil liberties and basic democratic rights to members of unpopular groups.” Which groups are unpopular, is not the question being asked.
So, for example, someone who believes that a man should be able to marry his pet goat is not necessarily politically tolerant. What would make him tolerant in this sense is whether he is willing to recognize the rights (particularly regarding speech) of those who disagree with him and his marital proclivities.
In this respect, political tolerance has declined substantially. For the first time since it was measured, the political tolerance of young people has fallen below that of their parents and as Kelly-Woessner again notes, “… is correlated with a ‘social justice’ orientation,” at least for those under forty.
Indeed, the inability to tolerate political views that run counter to one’s own, particularly on the left, has become so ridiculous to be comical. Just take, for example, Judith Shulevtiz’s description of the “safe space” set up at Brown University because of a debate between the feminist Jessica Valentia and Wendy McElroy where McElroy was likely to criticize the term “rape culture.”
The safe space … was intended to give people who might find comments “troubling” or “triggering,” a place to recuperate. The room was equipped with cookies, coloring books, bubbles, Play-Doh, calming music, pillows, blankets and a video of frolicking puppies, as well as students and staff members trained to deal with trauma.
Well, at least they actually let the debate happen.
But the left has not always had a monopoly on anti-free speech thought and legislation. Nor does the right seem to be opposed to it when it can push such things through today. Helen Thomas was fired from the White House Press Corps for saying “The Jews should get the Hell out of Palestine.” Shirley Sherrod was fired for allegedly anti-white statements, a Kansas woman was fired for a fifty-word Facebook post that was considered anti-American-soldier, and the right went into a fervor over Jeremy Wright’s “chickens coming home to roost” comment.
Whereas liberals want to ban words such as “slut” and, at least in Sheryl Sandberg’s case, “bossy” too, conservatives used to all but ban those “seven words you couldn’t say.”
When the right had more cultural authority, alleged communists were being dragged in front of the House Committee on Un-American Activities, Civil Rights activists were harassed, and the Motion Picture Production Code banned Hollywood directors from showing things such as miscegenation.
But that was then and this is now. As the pendulum of cultural prominence swung from one side to the other, the left and right swapped their support for free speech.
Nevertheless, I don’t want to draw a false equivalence here and say the right would be just as bad as the left if they were winning the culture wars. Much of the ideology on the left, at least the far left, is derived from the likes of Herbert Marcuse and other cultural Marxists who explicitly wanted to limit the free speech of “oppressor classes.”
Discerning what exactly free speech is can sometimes be challenging, as in cases of libel, slander, and direct threats. But these are really not the issues at heart here. The vast majority of speech being “regulated” today is simply that of an unpopular opinion. Yes, many ideas are bad. And they should be refuted. Moreover, resorting to the use of political force to silence adversaries is a sign of the weakness of one’s own position. But, in using force to silence others, anti-speech crusaders are making another argument. They’re arguing that political force can and should be used to silence people we don’t like. What idea could be worse than that?
Elections took place across the country this past Tuesday with some interesting results. Voters in Ohio decided they hated monopolies more than they liked marijuana, while residents in Houston voted down the left’s latest egalitarian menace. While there is never a reason to trust the empty promises of pandering politicians, elections can occasionally offer insight into who is winning the battle for ideas. So there may be reason for optimism when you see Hawaiians’ discussing secession or the fact that there is global momentum in the fight against prohibition. While central planners struggle — both in the US and abroad — to maintain the status quo, bad government will never be able to repeal good economics.
The question then turns to how to we advance the cause of Austrian economics, peace, and freedom? That is the topic of this weekends’ Mises Circle in Phoenix, Arizona. One of our speakers, Dr. William Boyes, joined Jeff Deist this week to offer a preview of his talk. The founder of Arizona State University’s Center for Economic Liberty and a successful author of economics textbooks, Dr. Boyes discusses how to advance liberty and capitalism in the face of a statist educational system. One option — our new Online Mises Boot Camp!
In case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular articles at Mises Wire:Activists Seek to Impoverish Thai Villagers to Save Monkeys from "Slavery" by David AdamsFor WHO, Red Meat Is a Red Herring by Yuri N. MaltsevThe Fed Desperately Tries to Maintain the Status Quo by Ronald-Peter StöferleHow Beijing and the West Work Together to Manipulate the Global Currency War by Brendan BrownWhy We Need Private Property to Deal with Scarce Resources by Patrick Barron"Social Expenditures" In the US Are Higher Than All Other OECD Countries, Except France by Ryan McMakenZwolinski and Woods on the Basic Income Guarantee by David GordonPot Battle in Ohio by Mark ThorntonPoverty Does Not Cause Obesity by Ryan McMakenWill Regulation Destroy a Revolution in Physics? by Matt McCaffreyMy Irish Eyes Are Smiling by Mark ThorntonA Practical Guide to Hawaiian Secession by Ryan McMakenMexico, Canada, and Ten American States Look Toward Marijuana Legalization by Ryan McMakenYellen on Negative Interest Rates by Jonathan Newman
Leave it to NPR to add guilt to your pleasure. That bon-bon hidden behind your two-year-old bottle of Scotch just took on a whole new layer of sin. With child slavery in the production of chocolate and animal cruelty in the harvesting of coconuts, the conflict confection is born.
According to an animal rights group featured in a recent edition of NPR’s The Salt, abused monkeys are a key ingredient in your Panang curry. While the Thai/Malay practice of using monkeys to harvest coconuts dates back hundreds of years, landing in the crosshairs of activist vegans and SJWs (Social Justice Warriors) is a new phenomenon. Anthropologist Leslie Sponsel, quoted briefly in the NPR article, offered a defense of simian symbiosis. I caught up with Dr. Sponsel at his Hawaii home in hopes of learning more about his fieldwork. “Debate on the morality of enslaving monkeys to get a job done is a Western dilemma, not a Thai one,” Sponsel explained.
A lifelong environmentalist and author of Spiritual Ecology: A Quiet Revolution, Sponsel had reservations about watching primate pickers at work. Instead of calling for a nationwide boycott of coconut products as some have done, Sponsel did what every anthropologist worth his salt is trained to do: take pause and observe. He noted that neither his wife — a Thai Buddhist — nor a fellow Thai professor from a local university framed the practice in moral terms. Add a complete lack of compunction from the local Muslim population and Sponsel concluded that monkeys on task are not a cause, but a part of the “isness” of peninsula living.
The British explorer Robert Shelford observed in his 1916 book: A Naturalist in Borneo:
The modus operandi is as follows: — A cord is fastened round the monkey’s waist, and it is led to a coconut palm which it rapidly climbs, it then lays hold of a nut, and if the owner judges the nut to be ripe for plucking he shouts to the monkey, which then twists the nut round and round till the stalk is broken and lets it fall to the ground; if the monkey catches hold of an unripe nut, the owner tugs the cord and the monkey tries another. ... [At times] the use of the cord was dispensed with altogether, the monkey being guided by the tones and inflections of his master’s voice.
According to Sponsel, “Working macaques are the difference between a livelihood and abject poverty for many South Thailand farmers. Snake bites, stinging ants, and life-ending falls face whoever or whatever goes up those trees.”
Given the best monkeys harvest coconuts at over twenty times the speed of the most skilled man, the incentive to continue a centuries-old partnership is clear. During his fieldwork, Sponsel never observed or heard of monkey abuse by their handlers. He noted that many were treated similar to the way a Westerner treats a family pet. “For some households,” he observed, “they may even rise even to the level of being a family member.”
For a country that sees its stray dog population driven in crates to Vietnam every Tet New Year to become a side dish, the Thai macaques could have it worse. According to Sponsel, “Young ones are trained and kept on a rope or chain tethered to the handler or to a shelter when not working.” It is this practice that has earned the ire of some activists. Sponsel counters that in our society it is a matter of civility to keep a pet on a leash. And who hasn’t seen the mother who ties a string to her own children on a walk through a busy mall! According to Sponsel, the monkeys he observed were well-fed, groomed and cared for. Indeed, he often saw macaques being pushed in carts by their handlers on the way to the plantation.
“This debate is not new,” Sponsel explained. “Back in 1952, Jean Marcel Brulle’s The Murder of the Missing Link tackled our moral obligation to primates.” In an account of science fiction, a man impregnates a female monkey and then kills the newborn to force a jury to deliberate whether murder extends beyond humankind. Be it a hairy chest, or his way with the ladies (simians included), Burt Reynolds played the lead in Skullduggery — a 1970’s take on Brulle’s dilemma.
As some ramp up calls for a boycott, Sponsel cautions the bandwagon. “They should seriously consider how their campaign may negatively impact the livelihood of poor farmers. Some activists appear to be more worried about non-human animals more so than humans; even though the latter are also animals and have rights too.”
In a perfect world, Thai farmers would have machines and monkeys would have unspoiled wilderness. But, for the world we have — one in which habitat destruction wipes out entire populations — coconuts and farmers in need may be all that keeps the macaques in the trees and off the dinner tables.
Our booming green-industrial complex built up by administrations of both parties in the US is effectively using the United Nations, its thirty two “sister” institutions — such as the World Bank, UNESCO, and numerous “tribunals” — and hundreds of training and research centers. This huge international bureaucratic buildup is already employing over a million “international civil servants” to administer what our socialist visionaries hope will become the world government of the future.
An increasingly important “sister institution” of the UN system is the highly politicized "World Health Department" also known as the World Health Organization (WHO) which, as part of a new scare campaign, has issued new declarations that sausages, hot dogs, bratwurst, and ham are carcinogenic, and that all red meat is “probably carcinogenic.”
This new anti-meat campaign, however, is not about your health, but about the “health of the planet.” WHO’s attack on meat is happening just before the Paris gathering on global warming and is a part of the slow motion socialist revolution poorly disguised as “climate change awareness.” As usual, socialist policies today are justified as “necessity for future generations.” Famous Nobel Laureate in physics, Dr. Ivar Giaever, once an Obama supporter, now stands against the president on global warming. “I would say that basically global warming is a non-problem.” Giaever ridiculed Obama for stating that “no challenge poses a greater threat to future generations than climate change.” The physicist called it a “ridiculous statement” and that Obama “gets bad advice” when it comes to global warming. I am sure that Obama and other politicians are peddling the climate change agenda not because of “bad advice,” but because advocates provide them with the argument for central planning and curtailing of individual liberty.
The 2015 United Nations Climate Change Conference, which will be held in Paris from November 30 to December 11, is designed by the Obama administration as the major leap forward toward world government and central planning. It will be the twenty-first yearly session of the Conference of the Parties to the 1992 United Nations Framework Convention on Climate Change (UNFCCC), and the eleventh session of the Meeting of the Parties to the 1997 Kyoto Protocol. The conference objective is to achieve a legally binding and universal agreement on climate, from all the countries, including the US.
All globalists were mobilized for preparation to this event. Pope Francis, for example, published an encyclical called Laudato Si’ help to secure success for the conference. The encyclical calls for immediate action against human-caused climate change. The International Trade Union Confederation, which traces its origins back to the First International founded and addressed by Karl Marx, has called for the goal to be "zero carbon, zero poverty," and its general secretary Sharan Burrow proclaimed that there are “no jobs on a dead planet.”
The war on meat is part of this public relations blitz. Lord Stern of the UK, a former chief economist of the World Bank, believes that “meat is a wasteful use of water and creates a lot of greenhouse gases. It puts enormous pressure on the world’s resources. A vegetarian diet is better.”
Another Stern, this time our own, is a US special envoy for climate change appointed by the Obama administration to secure a strong climate agreement at the Paris climate conference. Ambassador Todd Stern is now traveling to Brazil and Cuba to obtain support from these corrupt socialist governments to stand against “the global threat of climate change.”
In the US, socialist zealots and their “capitalist” cronies have already destroyed the coal industry and the whole energy sector is under attack. Now they are after the meat industry which is, according to them, “unsustainable.” The left-wing Union of Concerned Scientists lists meat-eating as the second-biggest environmental hazard facing the Earth. (Number one is fossil-fuel vehicles.)
In the Soviet Union, when it existed, beef was available only to Communist Party functionaries and everybody else could only find it on the black market. It was “explained” to the masses that meat was bad for their health. In Cuba today you cannot find beef in the food stores. Ground beef (usually mixed with soy), chicken, sausage, and ham are rationed by the government in the amount of a half pound per person every fifteen days. My Cuban friends complain, however, that most of these deliveries are unreliable and can be “canceled” without any explanation.
In the US, the 2015 Dietary Guidelines Advisory Committee worked on concocting a 571-page report of pseudoscientific “evidence” to encourage Americans to avoid red meat. US departments of Agriculture and Health and Human Services will use this junk science to guide federal nutrition policy, including the $16 billion school lunch program.
And it’s all being done at our own expense. The United States is bankrolling the UN and its “sister” institutions, including WHO, from one-quarter to one-third of their operating budgets. Let’s hope we don’t get all the world government we’re paying for.
During the press conferences of recent FOMC meetings, millions of well-educated investment professionals have been sitting in front of their screens, chewing their fingernails, listening as if spellbound to what Janet Yellen has to tell them. Will she finally raise the federal funds rate that has been zero bound for over six years?
Obviously, each decision is accompanied by nervousness on the markets. Investors are fixated by a fidgety curiosity ahead of each Fed decision and never fail to meticulously observe Janet Yellen and the FOMC, and engage in monetary ornithology on doves (growth- and employment-oriented FOMC members) and hawks (inflation-oriented FOMC members).
Fed watchers also hope for some enlightening information from Ben Bernanke. According to Reuters, some market participants paid some $250,000 just to join one of several dinners, where the ex-chairman spilled the beans. Apparently, he does not expect the federal funds rate to return to its long-term average of about 4 percent during his lifetime.
In a conversation with Jim Rickards, Bernanke stated that a rate hike would only be possible in an environment in which “the U.S. economy is growing strongly enough to bear the costs of higher rates.” Moreover, a rate increase would have to be clearly communicated and anticipated by the markets — not to protect individual investors from losses, Bernanke assures us, but rather to prevent jeopardizing the stability of the “system as a whole.”
It is axiomatic that zero-interest-rate-policy (ZIRP) cannot be a permanent fixture. Indeed, Janet Yellen has been going on about increasing rates for almost two years now. But, how much more lead time will it require to “prepare” the markets? In both September and October the FOMC chickened out, even though we are not talking about hiking the rate back to “monetary normalcy” in one blow. The decision on the table is whether or not to increase the rate by a trifling quarter point!
The Fed’s quandary can be understood a little better by examining what “monetary normalcy,” or a “normal interest rate,” is supposed to be. Or, even more fundamentally: what is an interest rate?
We “Austrians” understand an interest rate as an expression of market participants’ time preference. The underlying assumption is that people are inclined to consume a certain product sooner rather than later. Hence, if savers restrict their current consumption and provide the resources for investment instead, they do so only on condition that they will be compensated by increased opportunities for consumption in the future. In free markets, the interest rate can be regarded as a measure of the compensation payment, where people are willing to trade present goods for future goods. Such an interest rate is commonly referred to as the “natural interest rate.” Consequently, the FOMC bureaucrats would ideally set as a goal a “normal interest rate” that equals the “natural” one.
This, however, remains unlikely.Six Years of “Unconventional” Monetary Policy
ZIRP was introduced six years ago in response to the financial crisis, and three QE programs have been conducted. This so-called “unconventional monetary policy” is supposed to be abandoned as soon as the economy has gathered pace. Despite the tremendous magnitude of these market interventions, the momentum in the US economy is rather lame. Weak Q1 data, which probably resulted from a weak trade balance due to a 15 percent rise of the US dollar, shocked even the most pessimistic of analysts; the OECD and the IMF have revised down their 2015 growth estimates. A long-lasting, self-sustaining growth is out of the question. This confirms the assumption that ZIRP fuels everything under the sun — see “The Unseen Consequences of Zero-Interest-Rate Policy” — except long-term productive investment.
And what about unemployment and inflation that are key elements of the Fed’s mandate? The conventional unemployment rate (U3) has returned to its long-run normal level, so the view prevails that things are developing well. However, those figures conceal a workforce participation rate that has fallen by more than 3 percent since 2008, indicating that some 2.5 million Americans are currently no longer actively looking for a new job. However, should the economic situation improve, they would likely rejoin the labor force. Furthermore, the proportion of those only working part-time due to a lack of full-time positions is much higher now than before the crisis. “True” unemployment currently stands rather at about 7.25 percent.A Weak Economy and Weak Inflation
With regard to inflation, the Fed’s target is 2 percent, as measured by growth of the PCE-index. This aims to buffer the fiat money system against the threat of price deflation. In a deflationary environment, it is believed, the debt-servicing capacity of market participants (e.g., governments, private enterprises, financial institutions, and private households) would come under intense pressure and likely trigger a chain reaction in which loans collapse and the monetary system implodes.
In many countries, and among them the US, inflation is remarkably low — partly due to transitory effects of lower energy and import prices — while low interest rates have merely weaved their way to asset price inflation so far. But, as price reactions to monetary policy maneuvers may occur with a lag of a few years, we should expect that sooner or later inflation will also spill over to normal markets.
As a response to anything short of massive improvement of economic and employment data, a rate hike is scarcely likely, and inflation in the short-term is also unlikely. Moreover, the current composition of the FOMC — which is extremely dovish — implies inflation-sensitive voices are relatively underrepresented. This gives rise to the suspicion that rate hikes are not very likely at all in the scenario in the short-term.What Will the Fed Do If There’s Real Economic Trouble?
One is concerned about economic development, which has a shaky foundation and headwinds from other parts of the world; it appears that growth has cooled down substantially in the BRICS countries. Meanwhile, China might be on the brink of a severe recession. (Indeed, China was possibly the most decisive factor to nudge the Fed away from raising rates in September and October.) This implies that world-wide interest rates will remain at very low levels and a significant rate hike in the US would represent a sharp deviation in this environment, bringing with it massive competitive disadvantages.
The markets are noticeably pricing out a significant rate hike. The production structure has long since adapted to ZIRP and “short-term gambling, punting on momentum-driven moves, on levered buybacks” are further lifting the opportunity costs of abandoning it. In order to try to rescue its credibility, the Fed may decide to try some timid, quarter-point increases.
But what will they do if markets really crash? Indeed, they are terrified of the avalanche that they might trigger. If there are any symptoms that portend calamity, the Fed will inevitably return to ZIRP, launch a QE4, or might even introduce negative interest rates. Hence, there does not seem to be a considerable degree of latitude such that a return to conventional monetary policy could seriously be expected.
“The Fed is raising rates!” — This has become a running gag.
From reading the commentaries you might have imagined that the process of a currency winning international reserve status depends on getting the IMF seal of approval. At least that seems to be the story with China.
So, strange to tell, the great international monies of the past evolved either before the IMF was created or without its help. Think of the Deutsche mark and Swiss franc — the two upstarts of the 1970s and 1980s — or briefly the Japanese yen when it enjoyed great popularity. Their emergence was due to the path of monetary stability chosen by their issuing authorities together with complete freedom from restrictions.
So why is the world of currency diplomacy now playing along with the nonsense of the IMF examining whether the Chinese yuan has met the criterion to become a reserve currency?
Incidentally, the last time that Washington body bestowed “reserve currency status” it was with respect to the Australian dollar and Canadian dollar, on the eve of the bust for the respective commodity and carry trade bubbles which sent them to their respective skies.Beijing and DC Pick the Winners and Losers
The question as to why the Western world is playing along with the official Chinese currency charade is part of a more general point. Why do Western governments pursue non-market trade diplomacy so enthusiastically with Beijing?
Think of the repeated times that Chinese communist party dictators traveled to a particular Western capital to hand out their list of chosen beneficiaries of Chinese corporate (mostly state) spending. These dictators were welcomed by fawning officials and bureaucrats who assured us that they also brought up, with muted whispers and inaudible comments, the problem of human rights to their guest.
And, by the same token, why are there high profile visits of Western leaders to China, presenting their own list of chosen industrialists selected to pick up the new business deals? This is not the way free markets, and global free trade, in particular, is meant to work.
If it smells like a rat it probably is a rat, and so it is with respect to these deals by collusion between China and Western governments, and their chosen corporate protégés, whether on currency or trade or investment matters. This is all an exercise in some combination of crony capitalism (with cronies on both sides!) and diplomacy by stealth. The gains and gainers are deliberately kept opaque. The losers are much less evident than the gainers, on whichever side of the fence, but principle and practice tells us that the total losses are much larger than the gains.The Cronies’ Currency War
In particular, how much more prosperous would China be today under a regime of currency freedom and well-functioning markets, than under the cozy order of restrictions and preferred access (to capital and trade) put together by Beijing and foreign governments in cahoots? And how much are Western priority systems for getting Chinese capital and orders to favored domestic destinations distorting the signals which guide the invisible hands? And how far is the secret — or not so secret — G-20 currency diplomacy, related to China, abetting the most serious episode of currency warfare since the 1930s?
Think about the new currency offensive launched by Europe last month when ECB Chief Draghi’s calibrated remarks about further QE drove the euro down by 3–4 percent against the US dollar in 24 hours, which was double the extent of any Chinese currency maneuvers earlier in the summer. And in the bigger picture, China’s mini currency devaluation hardly smacks of currency warfare compared to moves ten or even twenty times greater by Europe and Japan in the past three years.
So why did Beijing agree to the mild censoring which occurred at the last G-20 meeting (in Lima) of its own mini-devaluation when it could have called on Europe and Japan to halt their currency warfare?
A plausible answer is that Beijing has no interest in facilitating the emergence of a free market in its currency together with full convertibility. If silence is required on currency warfare as the price of getting its coveted currency reserve status, then so be it.
Yes, a fully convertible Chinese currency might well find a substantially lower level than today’s official rate. Much would depend on what steps accompany the road to convertibility. Would there be broad-based liberalization in the Chinese economy and markets such as to make assets there more attractive to both domestic and international investors in the context of improved prospects of economic prosperity? Or would the road to convertibility simply facilitate a flight of capital out of the country with little foreign appetite to engage in the opposite direction?
There is little indication that the Chinese leadership would take the market reform route, which incidentally might seriously undermine the basis of the rents enjoyed by themselves and their connected state enterprises. In effect, there is an unholy alliance between the West and Beijing on only limited reforms and the currency status quo as blessed by the IMF. Meanwhile, currency wars remain a protected activity of the large powers outside China.
Official game plans do not always work out as hoped. It remains to be seen whether the continued and accelerated path of monetary easing by Beijing is consistent with only a mini-devaluation of the Chinese currency. There is anecdotal evidence of Chinese retail investors now engaging themselves in a new bout of yield-search frenzy in the local high-yield bond markets. That may not endure in the face of a rising tide of default. And the massive yuan carry trade which built up in the past few years could contract much more forcefully in coming months in the context of shrunken yield gaps and credit market cool-down.
On Wednesday, the Federal Reserve once again reaffirmed its zero-interest rate policy. Amusingly, this commitment to the monetary status quo is being seen by some as “hawkish” which, as Ryan McMaken points out, “shows just how much the goal posts have been moved in recent years.” Unfortunately all the spin and promises of future rate hikes doesn’t change the fact that we are nearing the seven year anniversary of ZIRP with an economy Janet Yellen doesn’t think is strong enough to survive the reversal of the Fed’s monetary morphine. Hopefully our central bankers will one day realize their war on deflation is leaving us poorer, but in the meantime — at least we can laugh about it.
In this edition of the Mises Weekends, we have the third in our series on the current state of healthcare. Our first episode featured Charles Hugh Smith who discussed the consequences of a healthcare market taken over by government regulators and insurance lobbyists. Our second featured Dr. Michel Accad giving his perspective as a practicing doctor in a post-Obamacare world. This week, Robert Murphy discusses his new book, The Primal Prescription, which he co-wrote with Dr. Doug McGuff. Murphy not only applies his understanding of Austrian economics to highlight the problems plaguing us today, but offers advice on how to navigate through the current state of American healthcare.
In case you missed any of them, here are this week’s featured Mises Daily articles and some of our most popular posts at Mises Wire:The Fed Can’t Raise Rates, But Must Pretend It Will by Thorsten PolleitRobert Shiller Imagines What Consumers Should Want, While Ignoring What They Do Want by G.P. ManishThe War on Cars Is a War on Workers and the Poor by Gary GallesToday's War Against Deflation Will Make Us Poorer by Frank ShostakThe World Bank Threatens Free Markets in Peru by Simon WilsonIf Sweden and Germany Became US States, They Would be Among the Poorest States by Ryan McMakenThere’s More to Money than Hyperinflation by Matt McCaffreyPew: Homicide Rates Cut in Half Over Past 20 Years (While New Gun Ownership Soared) by Ryan McMakenSpectre by Matt McCaffreySunday of the Blind, or the Failed Revolution by Carmen Elena DorobățUS Soldiers Are Paid Significantly More than Civilians with Similar Skills and Education by Ryan McMakenWith Interest Rates, "There Are Two, Opposite Causal Chains at Work" Murray RothbardFOMC: We'll Raise Rates Some Day; We're "Hawkish" Now by Ryan McMakenUnderwear Prices to Remain Near Zero by Peter KleinTextbook Definitions of Economics: An Informal Survey by Jonathan NewmanPoliticians Pander to an Anti-Fed Public by Tho BishopIn Sweden Cash Is Becoming Radioactive by Joseph SalernoFirst they came for the cash, then they came for the microwaves by David Howden
Scarcity of resources exists in many forms and is the problem in economics. If resources were not scarce, there would be no need to economize. The existence of scarcity is true of all resources (such as time, human energy, and natural resources). However, it is not necessarily intuitive that allowing scarce resources to be owned privately is the solution to this problem.
Consequently, socialism appears attractive to many and they turn to having all resources owned collectively for the “common good.” Unfortunately, a society which spurns private property — and hands resources over to government planners instead — often learns the terrible lessons of central planning and the tragedy of the commons (i.e., commonly held resources will be plundered to extinction).
If society spurns allowing private ownership of resources, it must find some other means to prevent the tragedy of the commons and to allocate goods. Historically, the means chosen is the use of force and central planning. Throughout history, most of mankind has been divided into a hierarchical system of masters and slaves with some gradations between the two extremes. The masters (pharaohs, emperors, kings, sultans, warlords, etc.) devised complex rules-based systems for resource distribution that were decided by a small number of people and not by markets. And ultimately, these plans depended upon pure terror for enforcement. But this so-called solution to the problem of scarcity — restricting the people’s liberty through the use of force — does not work.Problem 1: We Can’t Economize Without Effectively Ordering Our Preferences First
The gradual growth in the understanding of what we now regard as basic economics eventually ended thousands of years of subsistence existence for the masses in the West. Modern economics explained that without private ownership of resources, there was no mechanism for observing or acting on ordinal preferences in which persons prioritize desires from highest to lowest. Without a way to allocate goods according to ordinal preferences, there is no rational means to economize for the betterment of society.
In other words, without markets and prices, there is no way to know what people really want or need, so the masters never really knew what to order the slaves to produce, what technical means to use, what alternative materials to use, the quality desired, or how much to produce. Thus, the commissars of the Soviet Union ordered the production of inefficiently produced, shoddy goods. The Soviet empire collapsed, despite the fact that Russia is blessed with vast natural resources and an industrious population.Problem 2: Few Raw Materials Are Ready to Consume
A second fatal problem with common/government ownership of resources is that few readily available, consumable resources actually exist. There are no resources on the planet that do not require at least a minimum of effort to transform into a consumable product. Even edible berries growing in the wild must be harvested, meaning that someone must transport himself to the berries’ location and pull them from the bush at just the proper time. The cost of doing so is the value one places on forfeiting his leisure. Of course, other natural resources require much more effort to convert to consumable products, passing through many stages of production.
For example, timber and minerals must be extracted, harvested, etc. and then molded into something that can be consumed. Consider a hiker lost in the wild. It matters not at all to him that great stands of timber lie within easy reach or that valuable minerals lie under foot. These natural resources require great effort over very long time periods to be converted into something consumable, as is the case with converting timber into a shelter or crude oil into gasoline. A lost hiker does not have the knowledge, time, or previously produced means to convert these basic resources into consumable products to ensure his survival. All this is far beyond anyone's autarkic abilities.
Now let us assume that someone did harvest trees by felling them, transporting them to a lumber mill, milling them, storing them in a ventilated and dry place for many months before kiln-drying them (all processes that are required to turn trees into useable lumber), advertising their availability to contractors, keeping sales records, sending out bills, and collecting the bills, only to have a socialist call him a plunderer and confiscate his lumber for free distribution to whomever the masters deemed to be politically advantageous to their continued privileged position. No one other than the favored cronies of government would ever harvest another tree. In other words, production of usable lumber would be monopolized, and as with all cases of monopolies, prices would increase and quality would decline. Moreover, with no voluntary market at work in timber and forest land, there would be no means of knowing if these resources were being used in a way valued by those who valued them most.
At the same time, the central planners could not let just anyone harvest the trees or access the land. If the trees had no owners, great forests would be denuded in short order because there would be no social mechanism to prevent what would amount to a tragedy of the commons by order of the state.Problem 3: We Need Private Property to Build Capital
Without the ability to profit from privately owned property, there would be no incentive to provide or withhold capital for any endeavor. Also, a system of private ownership is necessary to determine if that capital is being used in a way the consumers value. The consequences of ignoring this fact of economic science is most evident today in China's ghost cities, where resources, both natural and human, have been expended for no observable benefit except to advance the careers of politicians who can claim to have met the requirements of the latest Five Year Plan. Timber and other resources were provided to build ghost cities, not because the owners of the resources sought to be economical with their resources, but because government edicts required that timber, concrete, gasoline, and more be used to produce what are now empty cities.
The opposite case of resource waste comes from special interest groups who capture the political apparatus of the state and prohibit exploitation of resources by private individuals. In the name of protecting Mother Gaia from being plundered, modern environmentalists have convinced the political class that most progress is unsustainable, dangerous to our health, or any number of other specious claims. Society is prevented from benefiting from their conversion to consumable products. The poor suffer the most from these policies as the prices of raw materials — and thus finished consumer goods — are driven up.
Private ownership insures that valuable resources will never be plundered to extinction, because their value will have been capitalized. Instead, private owners will seek to make resources as widely available as possible without endangering the long-term prospects for future harvesting of resources. The process of determining a resource’s capitalized value is impossible absent free-market capitalism with strict defenses of property rights.
Despite both the theoretical and empirical evidence to the contrary, socialists tell us the opposite; i.e., that state ownership of all resources will prevent their plunder and ensure prosperity for all. As Ludwig von Mises explained, though, socialism is not an alternative economic system of production. It is a system of consumption only, and a system of economic ignorance and economic plunder.
Peruvians were pleasantly surprised, if a little bewildered, by the news that on the 8th of October they were to receive an extended weekend holiday. The reason for the impromptu vacation was the arrival of the “international community” in Lima for the IMF and World Bank’s annual board of governors meeting. Peru’s president, Ollanta Humala (enjoying a brief respite from an ongoing scandal involving his wife’s embezzlement of state funds), encouraged Peruvians to take pride in the fact that the leaders of international finance would deign to choose Peru as the venue for their conference and suggested that it “demonstrates to the whole world, the excellent stewardship of the Peruvian economy and the secure climate in which investment can be made” under his auspices.
These comments are interesting because Peru is indeed an undeniable economic success story. If you want a casebook example of markets lifting people out of poverty, look no further than Peru. However, what Humala skipped over is the fact this transformation took place long before his presidency and also that its causes are rooted not so much in wise statecraft, but rather Peru’s long and venerable tradition of state incompetency which has left it up to individuals to provide for themselves.
Fifteen years ago, the economist Hernando de Soto in his provocative book The Mystery of Capital wrote at length about the byzantine workings of Peruvian bureaucracy where registering titles to property or incorporating a business involved jumping through expensive administrative hoops and waiting not months but years for the right approvals. De Soto lamented the fact that this lack of legal recognition prevented the poor collateralizing and leveraging what were in reality quite considerable assets. However, his analysis overlooked the important question of whether, in the presence of an efficient Western-style regulatory state, ordinary Peruvians would have been able to accumulate the wealth to leverage in the first place.
It still remains — as every Peruvian and occasionally horrified western visitor knows — that Peru is a place where if you want to do something no-one, especially not the government, is going to stop you.
If you want a house, you can go to the outskirts of a city as millions of other Peruvians have done, take a piece of land and build one. If you want a business just start trading, on the street. If you want a garment factory just start one, in your house. Ditto if you want to set up a restaurant or even a school. It may be the case, as de Soto pointed out, that on paper it takes twenty-six months to officially recognize a bus route, but that did not stop enterprising individuals setting their vans or converted school buses on the road, marking out the beginnings of what are now the surprisingly efficient (if crowded) bus routes that carry passengers to almost every imaginable nook of Peru’s sprawling capital, for a fraction of a dollar. The successful bus and van enterprise is a remarkable display of spontaneous order in action.
In Peru there is no need to pay a consultation fee to a gatekeeper to authorize a medical procedure: blood analyses, endoscopies, and radiograms can be purchased on the spot from an array of sole proprietor clinics. All kinds of generic drugs can be bought under the counter. If in need of some entertainment, on nearly every street you can purchase a hi-resolution pirated DVD of the latest Hollywood blockbuster.
It’s not like Peruvians have never heard of regulatory permits, taxes, professional licensing, zoning laws, patent protections and so forth; they exist in a statute book somewhere, but they are largely abstract concepts, which, for most of the time can be safely ignored. Everything is for sale and barriers to entry are virtually non-existent.
The result of this serendipitous meeting of the cavalier Latin spirit with an apathetic state apparatus is a resilient civil society where low-cost privately provided health and education are available to all and people enjoy nutritional- and life-expectancy levels that sit high on the World Bank’s own development indices.
However, this achievement is only inadequately recorded in GDP statistics and is certainly not being celebrated by Peru’s president or the dignitaries at the World Bank. Indeed, rather than recognize informal and small enterprises as the true instantiation of free market principles, and the quintessence of liberty, the Bank quite openly decries its existence.
For the World Bank, absence of regulation automatically equates to underdevelopment. For the Bank, “development” is the attainment of specified metrics in consumption and social spending, years of state education, and implementation of legal provisions like minimum wage entitlements. The problem is that realization of these development indicators rather conveniently entails a populace in wage-labor, working for regulated businesses (corporations), where they can be taxed at the source. These taxes then are used to fund an array of social programs manned by "poverty professionals" who dedicate their efforts to finding out why everyone is strangely depressed once no-one is allowed to make a living that’s not mediated by state institutions or their corporate vassals.
This unimaginative development model also does nothing to detract attention from the questionable manner in which the Bank — and more specifically its private lending arm — the International Financial Corporation (IFC), work to bring people out of poverty. Peruvians are now quite aware of just how sincere the IFC’s motto of “creating opportunity where it’s needed most” really is.
For instance, one flagship project to provide access to high-quality health care saw the IFC provide a $120 million loan for the construction of the palatial Clínica Delgado now sitting in the middle of Lima’s exclusive Miraflores district. Lima’s residents can now enjoy consultations there for around $150.
Another needy Peruvian the IFC was happy to help was Peru’s richest man, Carlos Rodriguez Pastor, whose Intercorp group received $164 million dollars to expand its financial services divisions. Not to be outdone was Grupo Romero (owned by Peru’s wealthiest banking family) which received $180 million to renovate two vegetable oil processing plants, and Grupo Gloria which received a $25 million loan to build a factory that would solidify their total monopoly on dairy processing in Peru.
The IFC has also extended its influence into Peru’s tourist industry which attracts millions each year and provides a sizeable income to small companies, local tour operators, and indigenous communities that run it. Despite this success story, the IFC evidently thinks that there are still some Peruvians who could use a helping hand, like the plucky “Peru Holding de Turismo” group and its partner the “Orient Express” hotel chain who own and manage some of Peru’s most lucrative real estate. They received a $40 million loan to refurbish a number of luxury hotels in the Cusco region, catering to precisely the kind of jet-setting international elite sitting on the board of the IFC. One can only assume that the planners at the World Bank would like Cusco to become the Latin American Davos, all part of a poverty reduction strategy to assure Peruvians bright futures in hospitality, catering, and adult entertainment.
The examples go on and on as indeed does the story which can be retold from any other country in the “developing” world. The only thing that changes are the names of the domestic elites and some of the western corporations in receipt of this lucrative form of international state patronage.
The thousands of Peruvians who turned out to protest the conference are probably right to be suspicious of the motives of the bureaucrats and directors of the international institutions whose plans (like the Trans Pacific Partnership Agreement signed at the conference) and economic models would, if realized, remove real competition, deaden entrepreneurship, and curtail their freedoms.
As the conference came to a close, the sun came out and some of the informal street vendors, who had been rounded up and pushed outside the conference area before it commenced, began making their way back. If they looked hard enough they might have recognized Christine Lagarde, Jim Yong Kim, et al., speeding away in their blacked-out government cars. One had to wonder, whether this taxpayer-funded financial elite would recognize a free-market, even if were staring them in the face.
The yearly growth rate of the US consumer price index (CPI) fell to 0 percent in September 2015, from 0.2 percent in August and, 1.7 percent in September last year.
The yearly growth rate of the European Monetary Union CPI fell to minus 0.1 percent in September from 0.1 percent in the previous month and 0.3 percent in September last year.
Also, the growth momentum of the UK CPI fell into the negative in September with the yearly growth rate closing at minus 0.1 percent from 0 percent in August and 1.2 percent in September last year.
The growth momentum of China’s CPI eased in September with the yearly growth rate falling to 1.6 percent from 2 percent in August.Deflation Fears Gain Steam
Consequently, many experts are expressing concern regarding the declining growth momentum of the CPI and are of the view that rather than tightening the monetary stance, central banks should loosen their stance further in order to counter the emergence of deflation, which is regarded as a major threat to economic well-being of individuals.
For most experts, deflation is bad news since it generates expectations of a decline in prices. As a result, they believe, consumers are likely to postpone their buying of goods at present since they expect to buy these goods at lower prices in the future.
This weakens the overall flow of spending and in turn weakens the economy. Hence, such commentators believe that policies that counter deflation will also counter the slump.Will Reversing Deflation Prevent a Slump?
If deflation leads to an economic slump, then policies that reverse deflation should be good for the economy, so it is held.
Reversing deflation will simply involve introducing policies that support general increases in the prices of goods, i.e., price inflation. With this way of thinking inflation could actually be an agent of economic growth.
According to most experts, a little bit of inflation can actually be a good thing. Mainstream economists believe that inflation of 2 percent is not harmful to economic growth, but that inflation of 10 percent could be bad for the economy.
There’s good reason to believe, however, that at a rate of inflation of 10 percent, it is likely that consumers are going to form rising inflation expectations.
According to popular thinking, in response to a high rate of inflation, consumers will speed up their expenditures on goods at present, which should boost economic growth. So why then is a rate of inflation of 10 percent or higher regarded by experts as a bad thing?
Clearly there is a problem with the popular way of thinking.Price Inflation vs. Money-Supply Inflation
Inflation is not about general increases in prices as such, but about the increase in the money supply. As a rule the increase in the money supply sets in motion general increases in prices. This, however, need not always be the case.
The price of a good is the amount of money asked per unit of it. For a constant amount of money and an expanding quantity of goods, prices will actually fall.
Prices will also fall when the rate of increase in the supply of goods exceeds the rate of increase in the money supply.
For instance, if the money supply increases by 5 percent and the quantity of goods increases by 10 percent, prices will fall by 5 percent.
A fall in prices cannot conceal the fact that we have inflation of 5 percent here on account of the increase in the money supply.The Problem Is Really Wealth Formation, not Rising Prices
The reason why inflation is bad news is not because of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process. Here is why:
The chief role of money is the medium of exchange. Money enables us to exchange something we have for something we want.
Before an exchange can take place, an individual must have something useful that he can exchange for money. Once he secures the money, he can then exchange it for the good he wants.
But now consider a situation in which the money is created "out of thin air," increasing the money supply.
This new money is no different from counterfeit money. The counterfeiter exchanges the printed money for goods without producing anything useful.
He in fact exchanges nothing for something. He takes from the pool of real goods without making any contribution to the pool.
The economic effect of money that was created out of thin air is exactly the same as that of counterfeit money — it impoverishes wealth generators.
The money created out of thin air diverts real wealth toward the holders of new money. This weakens the wealth generators ability to generate wealth and this in turn leads to a weakening in economic growth.
Note that as a result of the increase in the money supply what we have here is more money per unit of goods, and thus, higher prices.
What matters however is not that price rises, but the increase in the money supply that sets in motion the exchange of nothing for something, or "the counterfeit effect."
The exchange of nothing for something, as we have seen, weakens the process of real wealth formation. Therefore, anything that promotes increases in the money supply can only make things much worse.Why Falling Prices Are Good
Since changes in prices are just a symptom, as it were — and not the primary causative factor — obviously countering a falling growth momentum of the CPI by means of loose a monetary policy (i.e., by creating inflation) is bad news for the process of wealth generation, and hence for the economy.
In order to maintain their lives and well-being, individuals must buy goods and services in the present. So from this perspective a fall in prices cannot be bad for the economy.
Furthermore, if a fall in the growth momentum of prices emerges on the back of the collapse of bubble activities in response to a softer monetary growth then this should be seen as good news. The less non-productive bubble activities that are around the better it is for the wealth generators and hence for the overall pool of real wealth.
Likewise, if a fall in the growth momentum of the CPI emerges on account of the expansion in real wealth for a given stock of money, this is obviously great news since many more people could now benefit from the expanding pool of real wealth.
We can thus conclude that contrary to the popular view, a fall in the growth momentum of prices is always good news for the wealth generating process and hence for the economy.
A just-released poll of Los Angeles residents found that 55 percent of respondents indicated their greatest concern was “traffic and congestion,” far ahead of “personal safety” — the next highest area of concern — at 35 percent. So if their city government was working in their best interests, it would be doing something about automobile congestion.
It is. Unfortunately, it will make things worse.
Los Angeles’s recently adopted Mobility Plan 2035 would replace auto lanes in America’s congestion capital with bus and protected bike lanes, as well as pedestrian enhancements, despite heightening congestion for the vast majority who will continue to drive. Even the City’s Environmental Impact Report admitted “unavoidable significant adverse impacts” on congestion, doubling the number of heavily congested (graded F) intersections to 36 percent during evening rush hours.Driving Saves Time and Offers More Opportunity
Such an effort to ration driving by worsening gridlock purgatory begs asking a central, but largely ignored, question. Why do planners’ attempts to force residents into walking, cycling, and mass transit — supposedly improving their quality of life — attract so few away from driving?
The reason it takes a coercive crowbar to get most people out of their cars is that automobile users have concluded cars are vastly superior to the alternatives.
Why is automobile use so desirable:Automobiles have far greater and more flexible passenger — and cargo-carrying capacities.They allow direct, point-to-point service.They allow self-scheduling rather than requiring advance planning.They save time.They have far better multi-stop trip capability (this is why restrictions on auto use punish working mothers most).They offer a safer, more comfortable, more controllable environment, from the seats to the temperature to the music to the company.
Those massive advantages explain why even substantial new restrictions on automobiles or improvements in alternatives leave driving the dominant choice. However, they also reveal that a policy that will punish the vast majority who will continue to drive cannot serve residents effectively.How Restrictions on Automobiles Punish the Working Poor the Most
The superiority of automobiles doesn’t stop at the obvious, either. They expand workers’ access to jobs, increasing productivity and incomes, improve purchasing choices, lower consumer prices and widen social options. Reducing roads’ car-carrying capacity undermines those major benefits.
Cars offer a decrease in commuting times (if not hamstrung by government planning), providing workers access to many more potential employers and job markets. This improves worker-employer matches, with expanded productivity both benefiting employers and raising workers’ incomes.
One study found that a 10-percent improvement in travel time raised worker productivity 3 percent. And increasing from a 3 mph walking speed to 30 mph driving speed is a 900-percent increase. In a similar vein, a Harvard analysis found that for those lacking high-school diplomas, owning a car increased monthly earnings by $1,100.
Cars are also the only means of assembling enough customers to sustain large stores with highly diverse offerings. Similarly, “automobility” dramatically expands the menu of social opportunities that are accessible.
Supporters like Los Angeles Mayor Eric Garcetti may dismiss the serious adverse effects of the “road diets” they propose (a term whose negative implications were too obvious, getting it benched in favor of the better-sounding “complete streets”). But by demeaning cars as “the old model” and insisting “we have to have neighborhoods that are more self-contained,” the opponents of auto use do nothing to lessen the huge costs or increase the very limited benefits they plan to impose on those they supposedly represent.
Further, the “new model” of curtailing road capacity to force people out of cars is really a recycled old far-inferior model. As urban policy expert Randal O’Toole noted in The Best-Laid Plans:
Anyone who prefers not to drive can find neighborhood … where they can walk to stores that offer a limited selection of high-priced goods, enjoy limited recreation and social opportunities, and take slow public transit vehicles to some but not all regional employment centers, the same as many Americans did in 1920. But the automobile provides people with far more benefits and opportunities than they could ever have without it.